FOR about 150,000 homeowners with a second mortgage held by Bank of America, it seemed too good to be true. In the last couple of months, a lot of my clients received letters in the mail saying that their second mortgage is being automatically forgiven and wiped out. And they don’t even have to do anything. The letter says that the bank will do all the work and process all the required documentation. All that the homeowner needs to do is to sit back and wait. Too good to be true?
Actually, it’s not. It’s really happening. This is all part of the national mortgage settlement entered into by five of the biggest lenders- Bank of America, Wells Fargo, Chase, Citibank and Ally/GMAC. If you recall, federal regulators and attorneys general all over the country started investigating all these lenders’ abusive practices when the national mortgage crisis began. To put an end to all allegations of wrongdoing, these lenders agreed to provide about $22 billion in various types of relief to qualified homeowners. The good news to Californians is that about 41% of this money has gone to about 80,000 borrowers living in the state. Types of relief include payments to homeowners who have lost their home in foreclosure, loan modifications with principal reduction, waiving short sale loan deficiencies- and second mortgage debt forgiveness.
If you are not one of the lucky homeowners benefiting from the settlement, perhaps you’re wondering what you could do about your second mortgage. Perhaps you’re even feeling angry and frustrated because it doesn’t seem fair that other homeowners are getting relief and you’re not. After all, you work just as hard as everyone else- doing your best to pay your mortgage, all your bills and to provide for your family. These days, I see a lot of cases where the client is barely able to afford the first mortgage, let alone the second. And a lot of these second mortgages have become extremely burdensome due to high balances and high interest rates. You may not be aware of this but if your home has decreased in value since the time of purchase, it may be permissible to get rid of the second mortgage. Let me explain.
This is done through a process called “lien stripping” in Chapter 13 bankruptcy. If the value of your home is less than the amount of the first mortgage, the second is essentially “unsecured” because it is not supported with equity. You will need to get an appraisal of your property to prove current value. If the judge agrees with the appraisal report, the second mortgage is treated as a non-priority unsecured debt. In Chapter 13, unsecured creditors usually get paid very little or sometimes, nothing. Once you complete the Chapter 13 plan, any unpaid portion of the mortgage is completely wiped out.
To find out more about bankruptcy and the benefits of “lien stripping”, call my office and schedule a free consultation so that I can help you explore your options in making your mortgage payments more affordable – Toll-Free 1-866-477-7772. We have offices in Glendale, Cerritos, West Covina and Valencia.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 4,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.