“Dear Andy,
Purchased home in 2005 in Michigan with a 1st and 2nd mortgage with same lender. Modified the home became delinquent again modified. now 1st is current and 2nd has been charged off. was offered a settlement but did not have cash on hand. what should we be worried about. can second foreclose 1st is 182,000 2nd 30,000
Can second mortgage foreclose?
Sharon”
Dear Sharon,
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The short answer is yes the 2nd mortgage has the right to foreclose. But in reality it is very doubtful they ever would. If they were to foreclose they would be responsible for all foreclosure costs, and all costs associated with maintaining the property (taxes, heat, etc) while they try to sell it. Once they got it sold they would be required to clear out the first mortgage at $182k, and then they would be entitled only to what is left. Unless you have a substantial amount of equity in the property it would be an exercise of futility for them to foreclose, in fact, they would probably lose far more than they would ever stand to gain. They may threaten foreclosure and make it sound as if it’s imminent, that’s common. Following through with it is another thing altogether.
If they’re already offering you a settlement than that’s a good thing and this would be the route I would suggest that you look into. I have helped many homeowners settle their 2nd mortgages over the past couple years and settlements can be shockingly low, sometimes in the 5-20% range. In your case with a $30k balance I would look to settle this somewhere between $2k and $6k, and not a penny higher. Play hard ball, let them know that’s all you have and eventually you’ll get it done.
I would suggest you start setting money aside whenever you can to build a settlement reserve to be used for this purpose. It may take a while to get to a point where you have enough to make the deal but you should have time.
If you have any further questions or would like to keep us posted on your progress please use the comment section below. I am subscribed to this post and always try to respond promptly. Good Luck!
Best regards,
Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.
If you have a mortgage, short sale, real estate, or loan modification question you’d like to ask just use the online form. I’m happy to help you totally for free.
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Hi Andy I live in Los Angeles I have a 1st and a 2st my 2st does not want to help me modified my loan paying to much a month and my house still has equity if I stop paying the 2st well they foreclose on me and lose my house I owe 1st 288.000 and the 2st 123.000 if they were to modified my loan I can still make the payments what should I do
Hi,
Have you looked into a refinance? If you still have equity in the property and have kept your payments current this may still be an option. Right now interest rates are as low as they have ever been, and I’ve heard rumblings that they may even be going lower. Try this first before missing any payments, as your credit rating will drop if you fall behind. .
If you have been trying to modify the 2nd mtg while you remain current on payments, you will likely continue to get the same answer…. no. I have seen hundreds of people try while current, and have yet to see a lender modify a loan that is not past due. It’s wacky and you would think that a bank would like to get in front of it and fix your loan before it becomes a problem, but they won’t give you the time of day until you owe them money. Unfortunately you would need to wait until you’re behind to have any chance at modification.
The catch 22 here is that by falling behind, you do face the possibility of foreclosure if it goes on for long enough….. and the fact that you still have equity certainly would increase the chances of that happening. You have to be careful here, but if a strategic default is in the cards, my suggestion would be to do your best to set as much cash aside as possible, so if you start to see foreclose notices come through, you can always catch the loan up (or come as close as possible).
On the bright side, it’s not all that common that the 2nd mtg will actively monitor what the equity in your home is.  If you do become delinquent, they may just lump you in with all the rest and they may not begin foreclosure actions for a very long time, if ever at all. If they do foreclose they still have to follow all of the foreclosure laws of the state of CA, and pay an attorney to take all the steps necessary, then pay to get you out of the house, and then pay a real estate broker to sell the house… and finally pay the 1st mtg off in full. Needless to say, this all becomes extremely expensive and time consuming eating into the equity that is available for them. They may not get nearly as much as you might think at first glance….. many times enough so that it’s just not worth it for them to foreclose.
Good luck and please keep us posted on your progress.
AndyÂ
Great advice.