how to negotiate a 2nd mortgage settlement

by Lemuel Durgan Published 2 years ago Updated 2 years ago

How to Negotiate a Settlement with a Second Mortgage After Foreclosure

1.. Contact the lender. Communicate with the lender over the phone or through the mail. Inform the lender you want to...
2.. Make an opening offer. You can start the offer low, but expect the lender to decline your first offer.
3.. Remind the lender you can file bankruptcy if they are not willing to...

Full Answer

How to settle a second mortgage for less?

How to Settle a Second Mortgage for Less 1. Contact the lender to discuss the debt. Begin the settlement process by expressing an interest in paying the debt. 2. Make an offer. If you start your offer low, expect the lender to counteroffer. Second mortgages are often settled for... 3. Remind the ...

Can I negotiate a debt settlement for a mortgage?

Mortgage debt settlement is more difficult to negotiate than standard debt settlement, such as settling credit card debts, since a mortgage loan is a secured loan. Your home acts as collateral, so if you do not pay the full amount owed on the mortgage, the bank has the option of taking your home and selling it.

Should you settle your mortgage debt or sell your home?

With the former, you keep your home while with the later, you sell your home. Mortgage debt settlement is more difficult to negotiate than standard debt settlement, such as settling credit card debts, since a mortgage loan is a secured loan.

How much should I offer to settle my mortgage?

Start by offering 5 percent of the loan. Do not expect the lender to automatically accept your low offer. The lender wants to recover as much money as possible. Lenders commonly agree to accept settlements for 10 percent to 20 percent of the loan. Show evidence proving your home is underwater.

Can you negotiate 2nd mortgage settlement?

Second mortgage lenders are often willing to negotiate lump-sum payments of significantly less than the total amount due in order to avoid default and foreclosure. Depending on your circumstances, a mortgage settlement may be your best path forward.

How can I get rid of a second mortgage?

In order to remove your second mortgage off your property you must initiate an adversary proceeding or file a lien stripping motion with the court. Most courts require that you file a lien stripping motion that will allow you to obtain a court order approving the removal of your second mortgage.

Can a mortgage payoff be negotiated?

It is possible to negotiate a discounted payoff on a second mortgage, sometimes with a drastic discount. If your home is worth less than the amount of its first mortgage, the second mortgage is legally unsecured. In this case, you can often negotiate a settlement for pennies on the dollar.

What happens when a 2nd mortgage is charged off?

What Happens After a Charge Off? After the charge off, the creditor will typically send or sell the account to a collection agency. That agency will probably make repeated calls and send letters to you to in an attempt to collect the debt.

Can my second mortgage be forgiven?

Debt Cancellation Consequences Your second lender may voluntarily forgive your second mortgage, including a home equity line of credit or home equity loan. The lender writes off all or a portion of the loan amount as a bad debt for a tax deduction.

What are the disadvantages of a second mortgage?

Disadvantages of second mortgages include the risk of foreclosure, loan costs, and interest costs. Second mortgages are often used for items such as home improvement or debt consolidation.

Will banks negotiate a payoff?

Depending on your lender, you may be able to negotiate a payoff amount for your car loan. In addition to the lender's policies, other factors that can impact your ability to negotiate include whether you're current on your loan payments, how much cash you have to offer and the condition of your vehicle.

Can you negotiate a loan payoff with a bank?

There's no guaranteed right to settling your debt, so if you want to negotiate a bank payoff, you'll need to find ways to make your offer appealing to your creditor. It's helpful to know specific information about how your creditor handles debt, such as when they sell it to a debt collector and for how much.

Why is mortgage payoff higher than balance?

Your payoff amount is different from your current balance. Your current balance might not reflect how much you actually have to pay to completely satisfy the loan. Your payoff amount also includes the payment of any interest you owe through the day you intend to pay off your loan.

How long before a mortgage debt is written off?

For most debts, the time limit is 6 years since you last wrote to them or made a payment. The time limit is longer for mortgage debts. If your home is repossessed and you still owe money on your mortgage, the time limit is 6 years for the interest on the mortgage and 12 years on the main amount.

Do charge offs go away after 7 years?

How to Remove a Charge-Off. A charge-off stays on your credit report for seven years after the date the account in question first went delinquent. (If the charge-off first appears after six months of delinquency, it will remain on your credit report for six and a half years.)

Why is my second mortgage Not on my credit report?

Your mortgage may not show up on your credit report if your lender doesn't report to credit bureaus, if your mortgage is new and hasn't been reported yet, or if there's an error on your loan paperwork, among other reasons.

Can I roll my second mortgage into my first?

It is possible to refinance first and second mortgages, combining them into one. Approval is contingent on the age of the second and how much equity is in the home. Refinancing to combine first and second mortgages is often a great way to reduce payments.

Can a 2nd mortgage be discharged in Chapter 7?

If you file for Chapter 7 bankruptcy, you cannot get rid of second mortgages, home equity lines of credit (HELOCs), or home equity loans. Filers in the Eleventh Circuit Court of Appeals, are no longer able to strip off (remove) these types of liens in Chapter 7 bankruptcy.

Why do people take out a second mortgage?

The best reason to get a second mortgage is to use the money to increase the value of your home. Using the money from a second mortgage to improve your home's value can maintain the equity you have in your home.

What is a release of second mortgage?

In situations when a property is lost to foreclosure and there is little or no equity, the first lien holder has the option to request a settlement for less with the second lien holder to release the second mortgage from the title.

What is second mortgage settlement?

Second mortgage settlement is much like credit card settlement. The lender and the borrower will have to come to an agreement that the mortgage holder/lender will accept money less than the outstanding balance of the loan. Experts say this happens when your home is “underwater” or has negative equity.

When is a second mortgage appropriate?

Experts suggest that this type of second mortgage is appropriate if you have a one-time expense, such as wedding, a debt consolidation or a major addition to your home, or even a purchase of a new home.

What is a second mortgage?

Second mortgage definition. A second mortgage is a lien on a property that is subordinate to an existing first mortgage. A loan to acquire a home is usually the first lien recorded on a property. Subsequent loans generally require new appraisal and the amount that can be obtained depends on the owner’s equity in the home- that is, ...

How long does a second mortgage last?

This is called home equity loan. It is a fixed rate loan distributed in one lump sum, with terms ranging from five to thirty years. You pay it back in monthly installments.

What is the second type of credit?

Second, you may structure it like a line of credit. Actually, the second type is really a line of credit. It is called home equity line of credit or HELOC.

Can a second mortgage go through foreclosure?

Worse, your property can go through foreclosure. Here’s a tip from experts. Lenders do not usually grant second mortgage loans on depreciating assets. Here are some reasons for the loan that your lenders might consider: Education. Home remodeling, additions and improvements. Medical emergencies.

Can you lose your security interest on a second mortgage?

Depending on how much negative equity exists, your second mortgage lender may lose his security interest if the first mortgage holder forecloses. Experts thus suggest that if your home is “underwater” and you are delinquent on your second mortgage, then second mortgage settlement is a good option for you.

How to negotiate a reduction of payoff of a second mortgage?

If you have a second mortgage on a home that lost value during the market crash, consider negotiating a settlement. Even if you are current on the first mortgage, you can save money by eliminating the junior lien.

How much to settle a mortgage?

Do not expect the lender to automatically accept your low offer. The lender wants to recover as much money as possible. Lenders commonly agree to accept settlements for 10 percent to 20 percent of the loan.

Is a second mortgage considered unsecured?

When your home is worth less than you owe, the second mortgage is actually treated as an unsecured debt. It is possible to negotiate a second mortgage payoff for pennies on the dollar, just as with credit cards and other unsecured debt.

Can a lender sue you for a foreclosure in California?

Since non-judicial foreclosures are the most commonly used method of foreclosure, lenders typically have no right to seek a deficiency judgment. If the home is foreclosed, the lender cannot sue you for the remaining balance.

How to settle a second mortgage?

Typically the loan needs to be a “non-performing” loan for an extended period of time before the lender will consider a favorable settlement. The longer the loan has not been paid, the better the settlement offer often gets. Often times the lender will send the homeowner an unsolicited offer letter to settle. Keep in mind, this is their opening offer, and the initial number can often be negotiated down substantially. Alternatively, the homeowner can type up an offer letter and send it off to the lender to begin the negotiation process. Once the lines of communication is open, and all parties agree they want to settle the second mortgage, it’s just a matter of coming to a number.

Why Do Lenders Settle Second Mortgages?

For most homeowners, their second mortgage is not attached to any real equity. This common situation results when the value of the property has declined in value. The common scenario is that the home value is equal to or less than the amount of the first mortgage. This leaves the second just “swinging in the wind” with no equity (or actual value) to hold on to. From the lender’s perspective, this second mortgage has very little value. It would make no sense for the second mortgage to foreclose because they’d have to pay off the first….which would result in a loss, not a benefit to them. Under these circumstances, most second mortgages can be settled for pennies on the dollar!

What to expect when you start a second mortgage offer?

If you start your offer low, expect the lender to counteroffer. Second mortgages are often settled for 5 to 20 percent of the loan balance. If the lender approaches you first with an offer, respond with your offer. Do not feel pressured to agree to a number you are uncomfortable paying.

How to settle a foreclosure on a house?

1. Contact the lender to discuss the debt. Begin the settlement process by expressing an interest in paying the debt. If your property is in foreclosure, explain the situation to the lender. Offer to supply the most recent tax assessment to show the lender your loans exceed the value of the home.

What to do if a lender is unwilling to settle?

If the lender is unwilling to settle or lower the debt, inform the lender that the debt can be erased if you choose to file for bankruptcy protection.

How long does a second mortgage affect your credit score?

Although the lender cannot force you to pay, the debt can affect your credit score for seven years. Many homeowners often do not realize it is possible to negotiate the balance owed on a second mortgage. The longer the loan is unpaid, the greater your negotiating power.

What happens if you are upside down on your first mortgage?

If you are upside down on your first mortgage, the second mortgage lender would be unable to collect money from a short sale or trustee sale. In California, lenders cannot seek deficiency judgments against homeowners if they choose to foreclose judicially. Although the lender cannot force you to pay, the debt can affect your credit score ...

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What is mortgage debt settlement?

Mortgage debt settlement has become an increasingly popular concept, with rising foreclosures and government bailout programs designed to help struggling homeowners. Mortgage debt settlement can take one of two forms: you can restructure or modify your mortgage with your lender, adjusting the principle that you owe if you are underwater on your ...

What is the best way to sell a house if you don't want to keep it?

Short sell your home. This is the best alternative for those who don't want to keep the house. With a short sale, you get your bank to agree to let you sell the home for below the amount you owe, and to accept the full proceeds from the sale as satisfaction of the debt, forgiving the remaining balance.

Can you renegotiate your mortgage?

Generally, you can try to: Renegotiate the terms of your mortgage. Usually, when you do this, the bank will try to get you to agree to pay back the full amount that you owe but will either lower your interest rate or stretch out your repayment terms so the monthly payment becomes more affordable.

Can you settle mortgage debt?

What to do if your second mortgage has been cut?

Explain that your employer has recently cut your weekly hours, that you've lost your job or you've suffered a serious illness or injury that is keeping you from working. Tell your servicer that this financial hardship has made it impossible to make your payments on your second mortgage loan.

What to write in a letter for a second mortgage?

Compose a financial hardship letter. Basically, this means putting into writing the reasons why you can't afford the payment on your second mortgage loan. Also include in the letter that you are seeking to have the principal balance of your loan reduced or your entire loan paid off.

Can you pay off a second loan with a financial hardship?

Agree to the solution suggested by your loan servicer if it determines that your financial hardship does make it impossible for you to make your payments. Only in the rarest and most severe of financial hardships will your servicer approve an immediate payoff of your second loan. More commonly, your lender may reduce the principal balance of your loan, lower your loan's interest rate or lengthen the life of your loan. All of these options will lower your monthly payment.

3 attorney answers

I would NOT do any of the other options in prior answers at all YET. Why? First, this assumes you have not paid on the 2nd mortgage for 10 years.

Richard D. Granvold

Doing a "lump sum" settlement may be an option. Here are some tips: 1. Have the settlement money in hand BEFORE making an offer. Nothing gets a faster rejection than asking a lender "will you take x to settle." Instead make then offer and let them know they have little time to decide or the money will be spent (i.e I have...

Mario Lee Adkins

The secret to settling any debt is 1) know how collectors think 2) have the cash immediately available to pay 3) have the credibility that your words are truthful. Non-attorney debt settlement companies only know #1. A local debt settlement attorney may very well have 1, 2 & 3. Hope this perspective helps...

What chapter does the Second Lien go under?

File chapter 13 and strip the second lien.

Can you keep a home if you have a second lien?

If you wish to keep the home, and if the value is truly less than the pay-off on your first you should consider speaking to a bankruptcy attorney to discuss whether a chapter 13 to strip the second lien might make sense for you.