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kaelyne3 · Joined: 07 Jul 2008 Posts: 3 2.78 Dollars($)

First off, sorry for the dual post - the last one ended up in the wrong forum...

I currently have a home in AZ with both a first and second mortgage. I need to sell this house asap as I have had to relocate to another state and cannot afford to maintain these payments in addition to my new rent costs much longer. I have looked into renting the house out but cannot get enough in rent to cover the costs so that is not a viable option.

With home prices down as low as they are and the market in my neighborhood the way it is, I would realistically be able to sell the home for enough to cover what I owe on the first but not what is owed on the second.

What are my options? Is there any way to negotiate with the 2nd to convince them to release their lien on the house so I can sell it and make it into an unsecured loan instead? If so, what would be the best way to go about that to convince them? Are there any other good options?

I have a good payment history with them (Citi Financial) and I have never missed or been late on a payment (yet) and don't want to simply foreclose on the debt if I don't have to. I make plenty of money to afford the payments on the 2nd as they are only about $250/month. It is when they are in combination with the $1300 mortgage payment that affordability becomes a serious problem. But if I don't work out something soon I am going to have to walk away from both which I really don't want to do.

Does anyone have any ideas on what I can do to get out from under this lien so I can sell the house without having to default or foreclose but still keep making payments on the 2nd?

cliff3 · Posted: Mon Jul 07, 2008 5:38 pm Post subject:

Hi kaelyne3 and welcome to the forum.

You have a problem that many people run into so don’t feel bad it will all be ok. There are a couple of options for you. One would be a short sale and the second would be a deed-in-lieu (dil). I will explain both below.

Short Sale: A “short sale” is a sale of the property for less than the total amount owed on the mortgage. An investor (we can arrange you with an ethical investor) may be able to convince the mortgage company to accept a short sale. Most lenders would rather have the majority of their money back than the hassle of a foreclosure, legal fees, renovation, and marketing costs associated with the reselling of the property.
Deed-in-Lieu: A Deed in Lieu of foreclosure (DIL) is a disposition option in which a mortgagor (home owner) voluntarily deeds the property in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from home owners who can financially make their mortgage payments.
What you want to do is contact your first lender and begin the short sale process. Explain to them that you will not be able to sell the house to cover what you owe so you need to do a short sale. They may not want to do it but, if you are insistent they will give in. Once you are done negotiating with the first lien holder then begin negotiating with you second lien holder.
This is a pretty involved process but, all you need to do is hire a realtor who has done several short sales before and he/she will be able to help you through the process. If you have any other questions do not hesitate to ask.

Hope this helps. Very Happy

kaelyne3 · Joined: 07 Jul 2008 Posts: 3 2.78 Dollars($)

Cliff,

Thanks for the reply. I am still a little confused though. The first mortgage is not the problem - it is just the second which is for all of about $30K. So, does the first mortgage company have to agree to do a short sale even though we can sell the house for enough money to pay it off? Would it still even be a short sale? All we are trying to do is:

1) Get out from under the house by selling it and paying off the first mortgage and throwing any additioanl funds (of which we don't expect much) towards the 2nd and
2) Keep paying on the 2nd (we do not want to default or foreclose on this) but just convince them to release their lien on the house so it can sell and we will keep making regular payments until it is paid off.

The payments on the second aren't out of reach at all and can easily be made on our salary so there is no need to ruin our credit and default on that small loan if we don't have to. We aren't behind in payments nor have we ever even been a day late. But we do need to get out from under the house itself as the combination of the two payments (about $1800/month) is killing us - particularly when it is just sitting in AZ vacant.

So, I understand about the idea of a short sale but I am just confused as to how it applies to our situation. Is there anyway to convince the 2nd to just renegotiate the loan such that it is not attached to the house but converted into more of a straight personal loan or something?

Caron · Posted: Tue Jul 08, 2008 6:14 am Post subject: RE: problems with 2 loans

Hi Kaelyne,

Welcome back to our forums.

Since you are sure that you can make payments on the second mortgage using your salary, I suggest that you sell off the home and pay off the first. Then use any additional funds to repay a part of the second. The rest of the second mortgage can be converted into an unsecured loan. However, there are chances of the lender selling it to a collection agency and the latter may harrass you to pay off the debt. So, you need to make sure that you are able to pay off the second as an unsecured loan in monthly installments. I suggest that you speak to your lenders about it and see what they have to say. Then let us know about it so that we can help you with further suggestions.

Good luck

kaelyne3 · Joined: 07 Jul 2008 Posts: 3 2.78 Dollars($)

Thanks for the info Caron,

So as far as converting the second to an unsecured loan - do I have to get them to agree to it first or does that just happen automatically once the house sells? Can I even sell the house if they have a lien on it and the sale price doesn't pay off the lien?

Thanks.

Niicss · Posted: Thu Jul 10, 2008 4:40 am Post subject:

Welcome back kaelyne.

I feel you can sell the property but if you cannot pay off the second mortgage then they can place lien on your other property. I think you can talk with the second mortgage company and try to pay them off with some repayment plans.

Caron

Hi Kaelyne,

I think you need to talk to the lender so that he doesn't issue a charge off on the second mortgage and allow you to pay it off as an unsecured loan. You need not sign any documents regarding this. But the lender should agree that you'll be making payments on the second mortgage even after the house is sold off.

Hope this will help you

Good luck

expert · Posted: Thu Aug 07, 2008 11:30 am Post subject: Lien Stripping

I am surprised that many consumers do not take advantage of bankrupcty laws that allow lien stripping. For example, if the property has a first of 200k and a second of 50k and the property is worth today 180k, the second, since it is 100% under water, can be completely stripped in a bankrutpcy proceeding. In fact, I am perplexed as to why someone would attempt a short sale with a junior lien holder who is under water and interferes with a consumers attempt to sell. They should consider stripping the lien first before attempting to sell.

Guest

Hello Mr. Expert.

Are you talking about bankruptcy chapter7 or chapter13? Will the chapter13 strip out the junior lien? I think only in chapter7 the junior lien is stripped out and that's even after selling all your non-exempt properties

expert · Posted: Fri Aug 08, 2008 6:46 am Post subject: Lien Stripping

I am talking about a Chap. 13, in a adversary proceeding you present factual evidence in the form of an appraisal and show that the lien is not secured due to the drop in equity.

Section 506 of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured.

Guest

Hello,
I often wonder what can help my situation. I am a single parent with 2 kids in college, I earn about 80K, I have an adjustable rate mortgage that fluctuates between 1560 and 2380 monthly. When it has been toward the 2000 mark, I've paid what I could since I have a pick a pay mortgage, hence I now owe an additional 9300 in interest that has been added to my principal. I have 130K in student loans which I currently pay roughly 600 monthly. I feel as if I'm barely holding on and have no idea what would be the best next step for me. My mortgage is now over 210K. What advice do you have for me? Also, I'm currently paying everything as scheduled without any late payments. Home prices that were 250K are now being sold for 130K. My next door neighbor just sold his home at a 11K lost just to get rid of it. Help!!!

jameshogg · Posted: Mon Mar 02, 2009 10:29 pm Post subject:

Hi Donis,

As you are current on your payments, I doubt whether lenders will help you with the options like short sale, deed in lieu or short sale. Lenders generally offer these options to the people who are delinquent on their payments. However, I would suggest you to contact your lender and explain your hardship to him. May be he will consider your issue and give you an alternative option.

Thanks

cliff3 · Posted: Wed Mar 04, 2009 8:46 am Post subject:

Hello Donis,

You need to be contacting your lender and speaking to someone directly in the Loss Mitigation department. They will be able to discuss several workout options that you may qualify for besides a deed in lieu or short sale. These workout options include a repayment plan and loan modification.

Also note that if your loan falls with Fannie Mae, there is a new workout plan that they offer as well. Borrowers who qualify will enter into a trial period of reduced payments, usually for four months. If they make payments on time during the trial, the modified mortgage terms could then be made permanent.

So please be sure to check with your Loss Mitigation department of your lender.

Let us know if you still have questions or need more assistance.

Good luck.

Very Happy

Posted: Thu Mar 12, 2009 11:45 am Post subject:

I guess Kaelyn9 is worried of credit loss by filing any unfamiliar plans like loan modification or bankrupcy as there will be a close necessity of a new home at newer place. (This has encouraged to bear the loss). Does it affect the score?

In Donis' case, it seems Obama's Loan modification program should enclose this this case (payment delinquency is not mandory for this plan). Debt consolidation can also be an option to think upon. If you are able to convince, the banks may offer some discount, but needs strong debate.

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