Settle second mortgage and stay in my home...

**Jon & Katie** · 01-18-2012, 09:29 AM

Hello,
My wife and I purchased our home in Vallejo California in 2004. We are underwater on our loan and we are starting the process of trying to settle our second mortgage, while avoiding forclosure. Our plan is to continue paying the first mortagage and taxes, and stop paying the second. We will take the payment of the second mortgage, $1050, and put it in a savings account. We currently have around 13,500 in this account and figure the process may take a year, which should result in around 25K that could be used to settle. Our goal is to settle for 15% or less. Any help or guidence would be appreciated. Here are the key information:

Purchase Price in 2004- 500,000
Financed with 0 down 80/20 loan
First- with B of A- current rate 3.0 (floats 2.25% over libor). Current on payrments. Monthly payment including tax/insurance= 2150. Balance 366,000.
Second- Charter One (CCO)- fixed at 6.6%. Current, but we will not make the next payment due on 2/6. This, I assume is a recourse loan, as we refinanced the original purhchase money loan, for home improvements. The balance is 136,547
Current Home value: Zillow estimate is at 270,000. OUCH!

We contacted Charter One in the loss mitigation department. We explained that we could no longer afford our second payment and wished to settle, not modify the mortgage. The phone # is 877-745-7366. The represanative said they would send out a packet that would include: DOD frank form, 4506T, include 2 months bank statements, 1 month pay stubs and sign all the docs. Also include a hardship letter with my offer.

Thank you in advance for any advice. I understand I have a tough road ahead!

Best Regards,

Jon & Katie

**TomEason** · 01-18-2012, 09:54 AM

Jon & Katie

Thanks for your post and welcome to the community.

Your 2nd is a non-recourse purchase money loan, and is seriously underwater. Therefore, there's nothing they can do except wait and watch. They won't FC and you have a very long time horizon in which to eventually settle. You're to be commended for planning to stop paying on your 2nd.

Before you do anything further, I recommend you visit this thread and read the strategy guide at post #1. And, BTW, as you'll soon discover, you don't

have a hard road ahead

at all. It's really pretty easy because you'll be doing nothing (except exercising patience).

http://www.loansafe.org/forum/debt-settlement/37996-strategy-settling-your-2nd-94.html

Good luck to you.

**Jon & Katie** · 01-18-2012, 10:08 AM

Thanks Tom! That is helpful. Based on this stategy, would you fill out the initial forms that CCO is sending out, or just ingnore them? You mentioned that the second may be non-recourse. The orignial second was with b of a for around 105K. When we refinanced it with CCO we took the full amount they offered, which was about 150K. We did use the extra money for home improvements. I thought because of this refinance, the newer loan would be considered recourse? If so, does this change any of the stategy mentioned?

**TomEason** · 01-18-2012, 11:06 AM

Jon & Katie

Thanks for your post. Your 2nd is recourse but that has no bearing on your strategy.

Again, according the the strategy guide, don't ever communicate with your 2nd lender or any CAs. That is, until your 2nd lender eventually makes you a settlement offer, which won't be any time soon.

**Jon & Katie** · 02-28-2012, 09:08 AM

Hi Tom,

I received the first call from the mortgage company. I told her I was busy and would have to call back. I saved the number in my phone, so I can better avoid the calls in the future. My question is around wage garnishment. As this is a recourse loan, are lenders going to court to file a lawsuit for the balance that would result in a wage garnishment? And if so, can they do this prior to a home foreclosure. I would assume that if they have to foreclose first, they would not do this because on the first being underwater, and therefor I think I would be ok?

**TomEason** · 02-28-2012, 09:34 AM

Originally Posted by Jon & Katie

Hi Tom,

I received the first call from the mortgage company. I told her I was busy and would have to call back. I saved the number in my phone, so I can better avoid the calls in the future. My question is around wage garnishment. As this is a recourse loan, are lenders going to court to file a lawsuit for the balance that would result in a wage garnishment? And if so, can they do this prior to a home foreclosure. I would assume that if they have to foreclose first, they would not do this because on the first being underwater, and therefor I think I would be ok?

Jon & Katie

Thanks for your post. I recommend you continue to follow the strategy and do nothing.

Your 2nd is non-recourse. In our state a secured lender must FC first before they can sue a lender. It's called the Security First rule, CCP Section 726. But in your case, you needn't even rely on that statute, since your 2nd is non-recourse.

While I realize you may think you should be doing something, nothing could be further from the truth. Just remain patient.

**meggood** · 02-28-2012, 01:22 PM

I think Tom means that your second loan IS recourse (you did refinance it), but as he said in #4, it doesn't matter. You have many concerns that early defaulters have about "wage garnishment" but in CA, the bank cannot "sue on the note." CCO MUST foreclose first, (seek "security first") which they won't do b/c they'd get nothing from it, and it'd cost them a lot to do it.

You're in a great position for success but you'll need to suffer a little first (some calls and minor credit fall). But I found that it really wasn't that bad. Since everything else will be current, once they charge off your 2nd, your debt/credit ratio will improve and your score will come back.

I, too, have a 2.25% over 6mo LIBOR on my first. It looks like the forecast for the LIBOR is to remain under 1 point for the nxt 2-3 yrs. I am crossing my fingers!

good luck

**TomEason** · 02-28-2012, 01:40 PM

meggood

Thanks catching that mistake! In my haste I didn't review all the prior posts here. You offer great advice.

**Brickell** · 02-29-2012, 08:28 AM

Mr.Eason I was hoping for advice on my situation. I have been making HAMP payments since July 2011 and our negotiator has notified us that it would be approved if not for our 2nd mortgage. Our Citi mortgage was sold to a law firm which we were making monthly payments to, but now has been sold again. Our negotiator at ASC says they cannot determine who now has our loan and is stating that with out a subordinate letter we can not proceed. How can a loan be sold and no one has contacted us for payment or settlement? Can you please advise me? Should I file for protection to discharge the 2nd or will it mess with the financials of my HAMP agreement? Thank you for any advice you can give me.

**TomEason** · 02-29-2012, 11:13 AM

Brickell

Welcome to Loansafe and thanks for your post.

To clarify, have you achieved a perm HAMP mod, or have you been making trial payments?

I'm fairly certain a subordinate loan cannot be used in the HAMP underwriting standards. I believe your ASC negotiator may either clueless or "blowing smoke."

I recommend you visit the MHA site, download, and refer to the appropriate section of the Handbook for Servicers of Non-GSE Mortgages Version 3.1 of May 2011

**DismalDays** · 02-29-2012, 12:42 PM

Jon and Katie

Please follow the excellent advice on this thread...no contact! Especially please be very careful not to get ****ered in to any loan mod since it'll just give the bank the opportunity to get your financial info. There is nothing CCO can do.

**Brickell** · 02-29-2012, 12:57 PM

Thank you for responding so fast! This is not a permanent HAMP mod, I started making trial payments in July 2011 until now. Yesterday I was told that the stipulation of stay of judgement I had made with Citi and sent to ASC in leiu of a subordinate letter is an issue of being approved for HAMP. ASC can not find out who owns the loan since it has been sold several times since Citi, and according to Citi the loan has been paid. When I was told by ASC that all I needed was the final signature to be done I thought this was over, but I just received today a fed ex letter stating I needed to send them papers on the title loan issue. What does that mean? How can I give them something when I don't even know who has the loan? What could ASC be blowing smoke about? Do you think they are trying to purposefully not qualify me for HAMP?

**TomEason** · 02-29-2012, 01:03 PM

Brickell

Thanks for your followup. Sounds to me as if ASC may believe the lien has already been reconveyed, which would be good news for you.

I might recommend you ask a friendly local title company to perform a title search on your property.

**Brickell** · 02-29-2012, 01:03 PM

Thank you Jon and Katie for your advice, but this has been going on since 2009. I have been working with ASC sending them my financials for a long time and luckily out of the blue last year I qualified for the HAMP. I never thought I would qualify so I feel very lucky and since I want to stay in my home I need to continue contact with my negotiator.

**Brickell** · 02-29-2012, 01:06 PM

What does reconveyed mean? And if I perform a title search do you think that is what ASC wants when they ask for documents on the "title loan issue" as stated in the letter today? Thank you again for your advice!

**TomEason** · 02-29-2012, 01:18 PM

Originally Posted by Brickell

What does reconveyed mean? And if I perform a title search do you think that is what ASC wants when they ask for documents on the "title loan issue" as stated in the letter today? Thank you again for your advice!

Why don't you ask your title company those questions? FYI, I'm not in the title business.

**meggood** · 02-29-2012, 03:28 PM

Brickell--

Reconveyance in this context is when the lien on the property is satisfied (usually when the loan secured by the property is paid off) and that lien reconveys to you. Tom was thinking ASC might be thinking that this may have already happened (which would be astoundingly good news for you). And you could find this little detail out by going down to the county recorder to see. Or contact a title company.

**meggood** · 02-29-2012, 03:32 PM

And BTW, Brickell,

Jon and Katie were not addressing you. Dismal Days was addressing THEM (J&K). This thread was started by them. LoanSafe etiquette is that you start your comment to the person you are addressing. So as to avert the confusion you made earlier. Just FYI!! and good luck!

**Brickell** · 02-29-2012, 05:08 PM

Thank you meggood for clearing that up for me, but do I have to a title search? I had believed all Miami-Dade county title changes would be recorded and seen on-line? If this is not the case, I will be going to a title company tomorrow. I just do not understand how ASC can not find out who has my loan from Citi? I was initially paying an agreed monthly payment to a law firm but last year they stopped accepting my payment. Stateing they were no longer servicing Citi loans, and that I should wait for further info. on where to make my payments. But I have been waiting since May 2011 to make another payment, hoping they lost my info.

**TomEason** · 02-29-2012, 05:42 PM

Brickell

I suggested having the property record run by a title company because they won't miss anything, which you are liable to do if you conduct your own search.

A title run of your property record isn't expensive, and is what I'd do if I were in your situation. But you should do whatever you think's best.

**Brickell** · 03-02-2012, 06:01 AM

Quick question, can you find out if your property's 2nd mortgage has been reconveyed through a property search? The title company suggested I perform a property search rather than title saying it would show what I needed to know about my 2nd mortgage. The property search takes 48 hours as well as the title search, but one is $150 vs. $250. I am hoping I a did the right thing and any advice would be appreciated. Thank you!

**TomEason** · 03-02-2012, 10:25 AM

Originally Posted by Brickell

Quick question, can you find out if your property's 2nd mortgage has been reconveyed through a property search? The title company suggested I perform a property search rather than title saying it would show what I needed to know about my 2nd mortgage. The property search takes 48 hours as well as the title search, but one is $150 vs. $250. I am hoping I a did the right thing and any advice would be appreciated. Thank you!

Whichever you decide on will likely be fine. You might ask the title officer what he/she recommends based on your need.

**Brickell** · 03-02-2012, 10:33 AM

Thank you for easing my concerns and I pray this will lead to my 1st mortgage being permanently modified.

**Brickell** · 03-05-2012, 02:22 PM

Any advice would be appreciated. I just received my title report, there was a corporate assignment of mortgage on ordered on 7/2011 by Wells Fargo assigning my loan to U.S. Bank National Assoc. as trustee for Citigroup. Citigroup Global Markets is the holder of the 1 lien on my property filed in 2009. Does this mean they are manuvering for a forclosure??

**TomEason** · 03-05-2012, 02:32 PM

Brickell

Why not ask your contact at the title company? You're a customer.

What happened with your 2nd lien? Did it show up? In other words are both your 1st and 2nd mortgage liens still of record?

**Brickell** · 03-05-2012, 02:38 PM

Originally Posted by TomEason

Brickell

Why not ask your contact at the title company? You're a customer.

What happened with your 2nd lien? Did it show up? In other words are both your 1st and 2nd mortgage liens still of record?

It shows 2 open mortgages and 1 lien filed 5/2009 by Wells Fargo. And my contact at the title company didn't know if the corporate assignment of mortgage meant they were trying to move my forclosure along. I am currently still trying to finish my 1st with HAMP so I thought my forclosure couldn't progress??

**TomEason** · 03-05-2012, 02:46 PM

Brickell

Sorry, but I'm afraid I can't help you with your HAMP loan mod app

If you want the details on the process, I recommend you visit the MHA site and download the Handbook for non-GSE Loan Servicers v3.4. Then you'll know at least as much, probably more, that the typical loan rep, LOL.

**Brickell** · 03-05-2012, 02:59 PM

Thank you, I had read you suggesting that in another thread and did read it. But I wanted to ask do I have 2 liens? Sorry to ask such an ignorant question, because on my title report it lists 2 mortgages but under liens there is only 1. Has my 2nd mortgage been reconveyed? It is still listed as a mortgage for the full $76,000.00. Thank you for your help I am mentally exhausted from trying to understand all this new lingo.

**TomEason** · 03-05-2012, 03:41 PM

Brickell

I'm a tad confused. In my experience, a title report would show the two recorded liens, which are the trust deeds securing the two mortgage loans, if in a trust deed state like mine. On the other hand, if in a mortgage state (where there are mortgages instead of trust deeds) the title report will reflect the two recorded mortgages.

As I've never owned property in a mortgage state, I'm afraid I can't offer you anything more. The reason I suggested doing business with a title company is because they are experts. If your title company contact is unable to answer your question, I recommend you ask to be connected with a title officer in their title department.

**Brickell** · 03-05-2012, 03:42 PM

Mr. Eason my 2nd mortgage holder is MERS mortgageIT and on its web page it states Old Republic Insurance Company is the servicer. Now if you were trying to perm mod with HAMP on your 1st, but they say they need a subordinate letter. If not I will be dropped from HAMP and the forclosure will continue, what would be your advice? I know you state in your rules for dealing with a 2nd mortgage, that you never contact them. But I am afraid I have no other choice or I will need to file for BK so they don't take my home. Should I threaten them with filing BK, so I can pay 10-15% and continue to close my 1st in HAMP? I understand you have say don't deal with the 2nd until your 1st is done, but I feel there is no other option.

**TomEason** · 03-05-2012, 03:58 PM

Sorry, I haven't a clue what ASC is asking for and why. What is your state? In all your posts, you've never disclosed that critical info.

You might seek professional assistance from a knowledgeable RE professional or lawyer in your locale.

**Brickell** · 03-05-2012, 04:10 PM

I am in the state of Florida and our negotiator from ASC stated we needed a subordinate letter before perm mod the 1st mortgage. Do you think I should make the 1st contact with this Old Republic Insurance to see what they offer? Since time is of the essence I can not wait years for the 2nd to be settled. And if their offer is not agreeable then contact a lawyer for BK protection. I am at a loss and I am hoping not to lose my house due to my confusion over all this.

**TomEason** · 03-05-2012, 04:16 PM

Originally Posted by Brickell

I am in the state of Florida and our negotiator from ASC stated we needed a subordinate letter before perm mod the 1st mortgage. Do you think I should make the 1st contact with this Old Republic Insurance to see what they offer? Since time is of the essence I can not wait years for the 2nd to be settled. And if their offer is not agreeable then contact a lawyer for BK protection. I am at a loss and I am hoping not to lose my house due to my confusion over all this.

Again, I recommend you consult with a local RE professional or lawyer (or legal aid if necessary). As I've never owned property in FL, I can offer no help. Be advised that in your state a secured junior lender can opt to sue the borrower for breach of contract in lieu of FCing. Your state is one of only two among the 50 states that allows that.

**Brickell** · 03-05-2012, 04:29 PM

Thank you so much for your time and advice! I am sorry to say I did hire a lawyer for loan modification and then paid more for forclosure defense back in 2009. She dropped me as a client in 2010 stateing there was nothing else to be done, since she stated ASC was not giving me any modifications. Luckily 2 months later I resubmitted paperwork and my loan was accepted for the HAMP program.
I am a little leary of lawyers after that, but I do understand I will need to contact a new lawyer if I do have to file CH 13.

**TomEason** · 03-05-2012, 04:37 PM

Brickell

I can understand your justifiable reticence to deal with another lawyer, but I can offer you no credible advice here.

**RoseDee** · 06-22-2012, 07:14 AM

Tom,

I wanted to ask you a question. We had our first loan modified but now our monthly payments are more because we now have our taxes and insurance included in the loan. We had a credit score in the 800's. We ran into some extra expenses and missed a few payments which was the reason the first approved a modification. We had been living paycheck to paycheck for over 6 years.

I need to know what to do with the second loan of 80K originally with countrywide, bofa and now greentree. It is a interest only ARM at 8.75% but will adjust in 4 more years. I have requested a loan modification package from them and just need to fax it to them.

The loan is a purchase loan. I am concerned that if I DO qualify for a modification that we will still be living paycheck to paycheck and will run in to this problem again in the future. I am thinking about seeing a lawyer to do a bankrupcy. I have read the post about settling on your second and would like to know if this would be better on my credit than a bankrupcy? Also my is about 200k underwater. I have read everywhere that the second cannot forclose because they are in second position and would like to make sure this is correct. Should I just start paying on the first and let the second go to collections? I live in CA.

**DismalDays** · 06-22-2012, 07:46 AM

Hi RoseDee,

If the loan is purchase money it's non-recourse, meaning that if you stop payment and walk on the house they cannot sue or harass you for the difference down the road, no reason to EVER pay this thing off. So your're safe there.

The second can foreclose if the 1st lien holder agree's to it, This only happens (and quite rare) when there is enough equity in the property after a foreclosure sale to cover both loans. However the fact that you're $200k under snuff's this scenario. Also the second will eventually attach to the property kind of like a tax or mechanics lien. Meaning that if you ever decide to sell, you or the buyer will need to settle it.

Now for the important piece. If you mod the second it'll then be a recourse loan and you'll never be rid of it in the event you lose the house to foreclosure.

If you guys have been living paycheck to paycheck for 6 years I'd stop paying the second immediately and focus on building savings. Hell if I were $200 under I'd stop paying in general. But that's me. If you're worried about your credit, I don't know what mine was 2 years before I stopped paying my loan and was foreclosed on. But after that time frame of no payments on the 1st or second and the second being charged off it dropped to 620.

**TomEason** · 06-22-2012, 02:10 PM

RoseDee

Thanks for your question.

If it were me, I'd immediately stop paying the 2nd and communicating with that lender. Your 2nd is underwater and won't FC.

I recommend you not try for a mod on that purchase money 2nd. Instead, I recommend you eventually settle it. Why? Because a settlement is always (except for a full extinguishment mod which is rare) a better deal for the borrower.

I recommend you definitely not file BK, particularly if you can afford your 1st, enjoy and want to keep your home. FYI, a Ch7 can stay on a credit file up to 10.5 years, a Ch13 up to 7.5 years, FCs also 7.5 years.

Good luck.

**Gordond** · 06-27-2012, 04:35 PM

I have been discharged from a chapter 7 since 7/2010 and did not reafirm my first or second mortgage. My first has been paid on time but I have not paid the second since 8/2011. My home value is $109K and my first mortgage balance is $110 and my second mortgage balance is $41K. Today I recieved a letter from WF today stating;
Due to inactivity, continued default and a lack of equity or monetary gain associated with the above loan-referenced loan, the loan was charged off. You may recieve an IRS 1099-C. Until a 1099-C is issued or the loan has a zero balance, payments continue to be accepted and applied as recieved. However due to the loan status, weare unable to offer a formal payment plan or process a modification for the loan.

What does this mean? Will they keep the second lein on the hoan or if I get a 1099-C will they release lein. I live in Georgia.

**maniak** · 12-17-2012, 03:50 PM

Hi Tom,

Recent Divorce and three year Job loss has put me where many already were in regards to their home. With the Divorce completed (no alimony either way) and a job secured, I have been able to work out a re-mod with my first (ASC). Problem is that they are asking Subordination from my second (Citi) who has already charged off the loan. Now attempting to correcspond with Second on settlement and they are asking for %65 which is about $110K cask in order to release the lien. Second is in first Position b/c of a re-fi a few years prior. I don't have that kind of cash. Are there other options I may not be privvy to, or do I have a no-win issue? House is %160 under water. I very much would like to stay in the home if possible since it's a good re-mod offer. Thanks for any insight you might be able to offer