Strategy for Settling Your 2nd

Status
Not open for further replies.

TomEason

LoanSafe Guide
#1
Strategy for Settling Your 2nd

To start with, if you intend to keep your house and cannot afford to keep paying both the 1st and 2nd, your priority is to keep your 1st current. An important and generally accepted rule is this. A property owner should not deal with his/her 2nd lender until after the 1st loan has been permanently handled.

Your 2nd lender, often being totally underwater, and hence "out of the money" won't foreclose. So, forget about your 2nd for a while, e.g. at least 6 months, but almost always much much longer. Here's the deal. Should you want a reasonable settlement, you'll need to follow a certain strategy. If you try to play by the lender’s rules, you may be able to settle sooner, but you will pay a lot more. If you have a good reason to be in a hurry (“just to get it done and move on” isn’t a good reason), then by all means reach out to your lender, but be prepared to jump through hoops, and to ultimately pay a lot more. However, to achieve a more palatable settlement, the process will require a smart strategy and patience, as it will most likely be a process lasting, at a minimum, six months, but often as long as several years.

Key settlement guidelines:

1) First, stop paying on your 2[SUP]nd[/SUP] loan and have no more communication with them, by either phone or mail. That’s right. When you see your lender’s collections dept on your caller ID, do not answer the phone, and do not return any voicemail messages. The first three or four months, you’ll likely receive many calls from the lender’s collections dept. Please just ignore them. FYI, many forum members have learned how to deal with lots of incoming collections calls from all sorts of creditors. You’ll figure out what’s best for you.

2) It’s irrelevant whether your lender charges off and/or sells your 2nd/HELOC to a debt buyer or not. Makes no difference whatsoever, so ignore it. If, in fact, the debt is sold to a new entity, and you receive a letter from the new owner, DO NOT bother sending a debt validation letter. It accomplishes nothing for you, does not affect your legal standing, and is generally a waste of time and effort. Plus, it signals to the debt owner that they have the correct address, and that you, as a debtor, are concerned, stressed, and naive enough to send it. BTW, a new debt owner is required, under the provisions of the FDCPA, to send a letter to the debtor advising them, among other things, of their right to have the debt validated. Means nothing, so forget about it.

3) When, eventually, you engage in settlement discussions with the lender’s recovery department (no, not the collections dept), you will most likely be asked some prying questions, and be asked to disclose financials. Politely refuse to discuss these. DO NOT disclose any personal info, to include your plans, and absolutely no financial or employment info. One member posted that his attorney quipped that giving financial info to a creditor is akin to “pre-judgment discovery.” A creditor doesn’t need that stuff in order to make you an offer. As the oft repeated maxim states, “knowledge is power.” And, as in the following humorous age old buyer-seller exchange. Buyer (Borrower): “How much do you want?” Seller (Lender): “How much you got?”

4) Some key negotiation guidelines:

a) Set your settlement goal, including the price and all the other conditions. Needless to say, do not share your goal with the lender. FYI, settlements are commonly achieved at prices in the range of 5-10 percent of the loan balance. The lowest I’ve seen is 2 percent; that settlement having been achieved via shrewd, hard-nosed bargaining by the borrower.

b) Do not rush the settlement proceedings, to include commencing negotiation talks. Let the lender’s settlement department initiate the talks, which can range from a minimum of 6 months (very rare) to as long as several years. Be patient. Time is on your side and the passage of time will only strengthen you position.

c) Do not behave as if you are rushed, eager, or worried at all. Instead behave in a very nonchalant manner, with a couldn’t care less attitude. Be prepared to walk away from the settlement talks at any time. Don’t worry, the debt’s not going away, and negotiations can be resumed later. Wait for the lender to initiate re-engagement in the negotiations.

d) When the lender’s settlement department contacts you, most likely after many months, they will leave a voicemail implying there may be a “workout” available for you. Return that call and listen to their offer. This means that lender is now motivated to reach a reasonable settlement, and may be glad to eke out any money on this loan.

e) Never accept the first offer. Instead counter the offer with a counter below your goal price. And, then off you go with your negotiations. Remember this negotiation basic. When the lender asks you to give up something, ask them what they’re willing to offer in return.

f) Avoid talking much, only enough to present you offers (counter offers), and to confirm and verify the lender’s offer. No idle chit chat, and never disclose personal info. Your negotiating opponent will likely be a trained negotiator.

g) While I realize this seems obvious and goes without saying, DO NOT end up negotiating with yourself. This frequently occurs when a negotiator is overly loquacious and attempts to be pleasant and polite to their negotiating opponent. The result is often giving something away, leaving something on the table.

h) It’s prudent to sleep on an offer before accepting or countering it, even for one that initially looks perfectly acceptable to you.

Notice about your credit: Yes, your credit will be damaged in the process, and unless your lender agrees to credit bargain as part of the settlement, the derog can remain on the credit file for up to 7.5 years in accordance with the provisions of the FCRA.

BK Dischargees: Since federal law prohibits a creditor from contacting the debtor for collection purposes, it’s imperative that the bankruptee mail a letter to the 2[SUP]nd[/SUP] lender authorizing that lender to contact you to settle. Subsequent to that letter, it's recommended no more contact be made with the lender until a settlement offer is proffered by them.
 
Last edited:

whypay

LoanSafe Member
#2
This is 'over the top'. Couldn't have been spoken any better. Brilliant!
 

TomEason

LoanSafe Guide
#3
This is 'over the top'. Couldn't have been spoken any better. Brilliant!
whypay, I'm so glad you like it, and thought you might. Decided to write it because, after many posts on the subject, new posts seemed repetitive and time consuming.
 

TomEason

LoanSafe Guide
#5
Tomeason,

Fantastic! This should be stuck in one of the forums.
Thanks NLVNV. I intend to multi-post it, and would have already done so, but we had been experiencing Loansafe server problems, so I was unable to do so yesterday and earlier today.
 

chopo

LoanSafe Member
#6
Thank you, Tomeason. I've spent hours earlier to read different posts on the subject and had found bits and pieces but nothing like this A to Z overview that takes two minutes.
 

TomEason

LoanSafe Guide
#7
Thank you, Tomeason. I've spent hours earlier to read different posts on the subject and had found bits and pieces but nothing like this A to Z overview that takes two minutes.
chop
Glad you find it helpful. Now, let's hope it proves valuable in helping us achieve good settlements.
 

yomann

LoanSafe Member
#9
Tom - very well stated !
Thanks for taking the time.
You are providing a lot of valuable guidance to the membership.
 

max11

LoanSafe Member
#11
Tomeason,
In this post you don't recommend contacting your Heloc lender at all.
But what if you did not reaffirm your Heloc in Bankruptcy? As I understand it, they are not allowed to contact you.
I have a 2nd with Wells Fargo I haven't paid in 23 months and no peep from them other than late notice after 2 missed payments.
Any insight?
 

facha

LoanSafe Member
#12
whypay, I'm so glad you like it, and thought you might. Decided to write it because, after many posts on the subject, new posts seemed repetitive and time consuming.
Tomeason, so true, I have been following exactly what you are suggesting but am still in the middle of it. Gave my settlement offer and haven't heard back (4 weeks) or contacted them. Our house is way under water and the 1st is HAMPed. We have plenty of time.
 
#13
Do you negotiate 2nd's for a living, or do you have this knowledge through personal experience, or have friends/associates that have done it this way. Everything stated makes complete sense and the section pertaining to negotiation is dead on. Part of my job is negotiating very large $$$$$ Contracts.
 

whypay

LoanSafe Member
#14
Do you negotiate 2nd's for a living, or do you have this knowledge through personal experience, or have friends/associates that have done it this way. Everything stated makes complete sense and the section pertaining to negotiation is dead on. Part of my job is negotiating very large $$$$$ Contracts.
He's a genius... and should change his user name to Tomeinstein!
 

dantheman

LoanSafe Member
#15
Well Stated!

Tom,

This is very well outlined. I settled my HELOC with WF for 20% over 6 months. They probably would have taken a little less in cash, but I needed to pay as I made the money. In general terms, I followed a similar path as you. First they overnighted me an offer of 60%, 50% at chargeoff and 30% following. I offered 10, 15, 18 and reached an agreement at 20%. In my State, this is subject to judgment so it was important to me to settle--as bankruptcy was not an option.

I will say that I did talk with them regularly. It did not hurt, but may or may not have helped. It certainly would have been easier to just avoid them and in the end, that is probably as good of advice as we could give.

I am often asked for private/personal advice on this subject. While I tend to give it, I always am sure to point out that I do not support strategic default for profit and assume the other party is under a hardship or please don't ask. I settled over $350k total as a result of a divorce and the economy.
 

shobam

LoanSafe Member
#16
Hey tomeason; I made the mistake of sending in a hardship letter, bank statements and pay stubs to CLC shortly after I closed on a short sale, that was back on November 2nd, 2010. I was not reading this blog than. I have not heard from them since, not a peep. Is it too late to use your strategy if and when they get back to me. Moreover, do you have any idea what they might up to not hounding me. Back in Novemeber they seemed "hot to trot" I owe 43K and CLC was willing to settle for 13K and I offered 4K and they countered with 6K. This all during the one and only conversation that I had with them. I have not since received a letter, call or anything from them in 3 months. Another question, that charge off is setting there on my CR. Can they keep resubmitting it everytime they call or does it have to go to a collection agentcy for me to take another hit on my report.

thanks, any advise, input as to what my next move would be if CLC calls.
 

lynnd

LoanSafe Member
#17
Tomeason -Given I am one of the individuals who has been seeking your counsel as I'm in the middle of it, I thank you for giving a step by step process. I copied and pasted the info on a document for quick reference, I advise others to do the same. And because I'm in the hurry up and wait mode, I can refer back to what you wrote for assurance. I never intended not to pay my debt (the 2nd) even though I'm underwater but unemployment knocked at my door so now I pray and truly trust God for help and victory as I have the confidence in Him that truly all things work together for good for those who trust Him! Thanks tomeason and this forum for being a part of our solutions and help in time of need :)
 
#18
Tomeason, I have read many of your post's offering advice on this issue. I am so glad the forum has someone of your stature to help push us along. I am in the process of beeing foreclosed upon by my loan servicer. I also have a second (construction loan) that I was not sure how to dispose of. Your advice gives me a realistic plan that I can follow and know what is supposed to happen at each step of the process. I can not thank you enough for your kindness and dedication to helping us understand the options we have.

My wife and I wish you the best.
 

TomEason

LoanSafe Guide
#19
Tomeason,
In this post you don't recommend contacting your Heloc lender at all.
But what if you did not reaffirm your Heloc in Bankruptcy? As I understand it, they are not allowed to contact you.
I have a 2nd with Wells Fargo I haven't paid in 23 months and no peep from them other than late notice after 2 missed payments.
Any insight?
max11
Good point. Due to length constraints I wasn't able to address all potential situations. Your question brings up a question which I didn't include in my post. And that question is, "why do I need to settle?" In the case of a loan having been discharged in a BK, as you know, the lender is forbidden by law, from trying to collect on that discharged loan. However, although the debt is gone, the 2nd lien is not, and will not magically disappear. The most compelling reason for a debtor to pursue settlement is to have the debt owner agree to reconvey that lien.
In your case, if removal of the lien is important to you, you should eventually (now or later - doesn't matter) make contact with them to initiate settlement discussions.
 

TomEason

LoanSafe Guide
#20
Tomeason, so true, I have been following exactly what you are suggesting but am still in the middle of it. Gave my settlement offer and haven't heard back (4 weeks) or contacted them. Our house is way under water and the 1st is HAMPed. We have plenty of time.
facha
Good for you; sounds like you're on the right track.
 
Status
Not open for further replies.