2nd mortgage charged-off, what are my options to settle

AthenaCT

LoanSafe Member
Looking for advice on what my options are with a charged-off 2nd. RE is in the state of CT. The 2nd originated in 2005, was a 15-year loan so according to the statute, I believe it means I need to wait until 2040, to petition to have the lien removed. I ceased payments in 2011, and received a charge-off notice on $120k in 2018. The loan is no longer on my credit report. The debt has since been sold to a collector who has my cell phone number and calls weekly, I've never answered or returned a call. The house value is equal to the sum of the 1st and 2nd. No intentions of selling or moving. Unable to resume payments on the 2nd or payoff. I am willing to settle and looking for advice on my options. I know collectors pay pennies on the dollar for debt, what on average do collectors pay for mortgage debt - is it the same, around .07 cents on the dollar? What is reasonable and realistic to start the settlement negotiations, 10%? What do most collectors settle for? Thank you in advance for any expertise willing to offer their knowledge on this.
 

Jzone

LoanSafe Member
Looking for advice on what my options are with a charged-off 2nd. RE is in the state of CT. The 2nd originated in 2005, was a 15-year loan so according to the statute, I believe it means I need to wait until 2040, to petition to have the lien removed. I ceased payments in 2011, and received a charge-off notice on $120k in 2018. The loan is no longer on my credit report. The debt has since been sold to a collector who has my cell phone number and calls weekly, I've never answered or returned a call. The house value is equal to the sum of the 1st and 2nd. No intentions of selling or moving. Unable to resume payments on the 2nd or payoff. I am willing to settle and looking for advice on my options. I know collectors pay pennies on the dollar for debt, what on average do collectors pay for mortgage debt - is it the same, around .07 cents on the dollar? What is reasonable and realistic to start the settlement negotiations, 10%? What do most collectors settle for? Thank you in advance for any expertise willing to offer their knowledge on this.
I just took a quick look at SOL in CT and it does look like 20 years after the original end of mortgage. Not a lawyer, so I would ask a real estate attorney.
Very unlikely you will settle for anything less than 50%, but you've got to start somewhere.
Are you sure there is a lien on the house? Check with your county register of deeds and verify that it is still there and who holds the lien.
The debt buyer may just have the debt and not hold the lien. Unlikely, but it does happen. More likely is that the debt buyer bought the debt and also holds the lien.
The good news is that the equity in your home is nothing. However, the value of your home will go up and you also will continue to pay on the first mortgage. So your equity will grow and make it more lucrative for the debt buyer to start foreclosure proceedings. And remember, they have 20 years to wait it out.
If you have no plans to sell right now, I would do nothing. Keep paying your first, find out who holds the lien and let the debt buyer make an offer to settle. If you really want to get an idea of what they will settle for, give them the 10% of the balance offer and see if they laugh or counter offer.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Bingo, what Jzone mentioned is right on the money. Now everyone knows here in LoanSafe I've been refinancing many, many of these liens (most with equity, some without). I wanted to explain a few things that I have learned that they look at on the other side:

How do 2nd lien holders determine if they want to pursue foreclosure:

  • They order a BPO (Brokers Price Opinion) to determine the value of the home, not often do they look at Zillow or Redfin per their comments but that's questionable.
  • Next they take 15% off of the value of the BPO to take in consideration selling costs and eviction costs.
  • Then they look at what loans were originated at the time you purchased the home and see if there were any future transactions recorded. They will look at the amortization schedule and see where you would fall based on how many payments you've made - that schedule will show your estimated balance.
  • Once they have this information they can see how much they would profit from foreclosing. Any other variables in regards to how much they purchased the debt for (if that's the case) would be unknown.
Disclaimer: I do not provide settlement services, I believe homeowners have the same capabilities as law firms when it comes to settling these liens. It's all about the numbers, not necessarily the education level of the attorneys trying to negotiate on your behalf. DO NOT pay up front fees for services to be rendered in the future when it comes to these types of situations.

There are of course things that they don't know which could be a previous modification of a mortgage or other things done which is why I don't think it's a bad idea to communicate with them assuming you have options. If you don't have any options it may be best to avoid them, I can't say for certain. Once it hits the attorneys desk at that time you want to start being concerned and immediately communicate.

How can you refinance these liens?
You can only pull out up to 80% of the value of your home, if that doesn't cover the 1st and 2nd liens I have seen people pull funds from their 401K in order to save the family home they inherited. Not many lenders are familiar with this process and in many cases will get denied. Please be aware of that and some may not know until title comes back and says "did you know there's an additional lien on the property" - because of course credit does not show that.

If you'd like to discuss things more and have additional questions please feel free to reach out to me. I've refinanced many, many charged off liens with Specialized Loan Servicing (SLS), Realtime Resolutions (RTR), Drew Eckl & Farnham LLP, West Coast Servicing Inc among a few others. My contact information is below:

Erik Sandstrom
[email protected]
619-379-8999
 
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