If you are struggling to make your mortgage payments, you aren't alone. In tough economic times, homeowners across the nation face the possibility of losing their homes and for many it has already become an unfortunate reality. With a second mortgage on the home, you are dealing with the added stress of an additional payment obligation each month. Settling the second mortgage is always something worth considering, regardless of whether you want to keep the home or need to let it go.
Why You Should Settle
After a foreclosure, you are still responsible for paying the debt. The first mortgage is secured by the home, but a second mortgage is unsecured if there is no equity in the home. If you have missed payments, your credit score is already starting the feel the consequences. Unpaid debt will have a harsh impact on your credit. In some states, lenders can even pursue a deficiency judgment against you. When a judgment is granted by the court, lenders can use any legal means to collect the money owed. You could face wage garnishments, tax-return interceptions, and even liens on your other possessions. By settling the debt, you can avoid destroying your credit and stop the collection activity. You may even be able to save your home by settling the second mortgage.
Loan Modification on a Second Mortgage
Before foreclosure, it is always best to explore all potential options. A loan modification is a common method used to help homeowners who want to keep their homes. Unfortunately, a modification won't always lower your payment. Although the interest rate is often lowered, payments can increase if you are far behind. It doesn't hurt to talk to your lender about modifying the second mortgage. There is even federal help available through the Making Home Affordable Program. Don't be afraid to take to your lender. Communication is essential.
Settling Without a Modification
Although some lenders are willing to settle second mortgages when the homeowner is on the verge of foreclosure, it is never a guarantee. If you are seriously underwater on your first mortgage, the odds of the lender agreeing to strike a deal are often greater. An appraisal showing the first mortgage is significantly higher than the home is worth can be your best bargaining tool. From the lender's point of view, you are a risk. Since a second mortgage is unsecured debt, it may never be recouped, especially if you file bankruptcy on the debt. It would be in the lender's best interest to accept something, rather than get nothing.
Settling in a Short Sale
In a short sale, the lender holding the first mortgage agrees to accept less than what you owe. The short sale releases your liability. However, you aren't entirely off the hook. You will still be obligated to pay the second mortgage. Some second-mortgage lenders are willing to accept a reduced settlement amount, sometimes for pennies on the dollar. If you are contemplating a short sale, talk to the lender holding the second mortgage. When you reach an agreement, the lender will release the lien and you can proceed with a short sale.
- REI Club: Short Selling Second Mortgages
- Loan Safe: Should I Negotiate a Settlement of My Second Mortgage?
- Business Insider: Underwater? How to Negotiate A Settlement On A Second Mortgage
- Making Home Affordable: Second Lien Modification Program (2MP)
- Suarino Law: Deficiency Judgments, Second Mortgage Lawsuits, and Other Post Foreclosure Problems