IF you are one of the millions of homeowners who survived the mortgage crisis in 2008, you have something to be grateful for. In 2008 alone, close to 900,000 homeowners were in foreclosure. This went on for several years until about 2011 and 2012. Hundreds of thousands lost their homes. Dreams were shattered. Banks were in a major panic and a lot of them had to be bailed out by the government or they would have gone out of business.
During that time, a lot of second mortgages did not get paid. This also lasted for years. Why? Because the lenders who were foreclosing on properties were first mortgage holders; second mortgage holders were stuck with no remedy because property values had dropped and most homes were upside down.
What this means is that the foreclosing lenders took priority over other junior lienholders which were often banks who issued loans to homeowners to help make the down payment towards the purchase of the home (Remember those “80-20” loans where the “20” was the second mortgage loan?) In some cases, the second mortgage loans were taken out after the purchase and the money used to make home improvements or pay other bills.
I see a lot of people these days who stopped making their second mortgage payments many years ago during that chaotic time in real estate history. Again, with no equity in the home, the second mortgage holders were fighting a losing battle for years because houses couldn’t be sold for enough money to also get them paid off along with the first mortgages.
Many people who realized they couldn’t even afford their first mortgage payment opted to go the short sale route. In a short sale, second mortgages got paid literally cents on the dollar but because they had no choice, it was better than getting zero.
OK, let’s fast forward to 2018. The real estate market has recovered. Some say home prices in some areas are back at their pre-2008 levels. In others, they’re not quite there yet. Suddenly, out of the blue, second mortgage holders are coming out of hiding and saying: “Where’s my money?” I find it amusing to see some people telling me: “Well, I never heard from them again. So I thought they went away!!!”.
Bad News: No, they couldn’t have gone away. They may have stayed away for years knowing that they couldn’t do much but their lien on your property couldn’t have magically disappeared. Now people are realizing that they haven’t paid their second mortgage for many years and the bank now wants all of their back payments or even worse, the entire amount! If they don’t get paid, they will foreclose and you will lose your home! Unfortunately, just when things are just starting to look better for some people, they are now in a major panic. The hidden monster has come out of hiding from the basement. These are the types of phone calls that I am getting these days.
The question is: What can you possibly do now to save your home?
First of all, of course, every case is different. The solution may depend on a lot of factors: value of the property, amount of all outstanding mortgages and liens, the lender you are dealing with, availability of loss mitigation options besides foreclosure, your income and expenses, etc.
If the delinquency is small enough that you can afford to pay it all back over a 5-year period, filing a Chapter 13 bankruptcy may be one option. Filing bankruptcy will stop all collection actions including foreclosure. Not everyone qualifies. You must have regular income and be able to prove to the court that you can afford to make the payments in order to catch up. If the value of the property is still below the amount of the first mortgage, you may actually be able to get rid of most if not all of the entire second mortgage amount. This is called “lien stripping” in Chapter 13.
A second option might be to negotiate a lump sum or structured settlement with the lender. Where there is still no equity or little equity, the bank may agree to take a percentage of the entire loan amount as payment in full. My office has been successful in many cases to do exactly this. For example, yesterday, we were able to settle at $350,000 second mortgage for less than half of this amount. The lender agreed to accept $25,000 in cash and low monthly payments for the balance. I am not saying that you should expect the same in every case but this is an example of what is possible.
The third option might be a loan modification. This is where the lender agrees to modify the terms of the same loan that you have in order to make the monthly payments more affordable. If you are behind, restructuring the loan reinstates the loan and gets rid of the delinquency. A lot of lenders offer this option if they believe it makes financial sense for them vs. foreclosing on your home.
If you or someone you know is in this situation, I provide a free consultation to discuss all possible options. Please call Toll-Free 1-866-477-7772 to schedule a free consultation. We have offices in Glendale, Cerritos 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 thousands of 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.