How to Resolve a Problem Second Mortgage
We’ll define a problem second mortgage as a loan that is 100% under water, or close to it. How to handle a problem second mortgage depends on your ultimate intentions with the property. If this is your primary residence, and you wish to stay in the home, that goal will lead to a strategy designed to resolve the loan without risking foreclosure. But if it’s a rental property already lost to foreclosure and the second lender is trying to get you to pay up, that would lead to a different set of tactics.
Determine your goal first – Assess your goal for the property associated with the second mortgage. Whether it’s a main home or a rental property, you must decide whether you intend to keep the property, sell it, or simply walk away.
Staying in the property – If the goal is to keep the property, then both loan modification and settlement (i.e., principle balance reduction) should be considered. To avoid foreclosure by the main lender, the first mortgage should be maintained, or allowed to slip no farther than 60 days late.
Selling the home – If the goal is to unload the property, then a short sale should be considered. Find a local realtor certified in short sale transactions to assist with the process. The second can be settled as part of the short sale process.
Walking away – If the property has already been lost to foreclosure, or is being abandoned due to massive negative equity or cashflow deficit, then the remaining issue with the second lien becomes the recourse deficiency. These should be settled when resources are available, to avoid potential future litigation with the Statute of Limitations period.
CAUTION: SECOND MORTGAGES are almost always RECOURSE loans, meaning the lender can pursue collection even after the home has been lost to foreclosure. That’s what makes them very different from first mortgages.
UNRESOLVED SECOND MORTGAGES are a potential legal risk for years to come, and will also affect your debt-to-income ratio and therefore hinder your ability to obtain future financing.
Here’s are some of the benefits of a second mortgage or HELOC settlement:
- Removes the second lien on your property, improving your chances for a successful sale or short sale.
- Reduces principle balance liability, often by 80% or more.
- Eliminates long-term legal risk of a deficiency judgment.
- Removes the balance from your debt-to-income ratio, which improves your overall credit worthiness in the eyes of future lenders.
- Gives you peace of mind knowing you have a documented resolution with no further liability.
Get Started Now:
If your second mortgage is keeping you awake at night, you need quality advice from a reliable and objective source. To get started, simply select your state and situation on our request form here to get started. We will review and analyze your situation, answer all your questions, and provide you with solid advice on the best strategy for dealing with your second mortgage. Our $150 consultation fee includes a full 30 days of support by email, so you'll have plenty of time to ask follow-up questions!