My House Was Foreclosed On But the Bank Wants Money From Me. – Xiomara

“Dear Andy,

I owned a single family house in N.Y. First and second mortgage were held by chase. The house was foreclosed almost two years ago. I received a letter from an attorney in August asking me to pay 10% of the debt on the second about $10,000 now I received another letter from same firm but this time they are asking to settle for 50% of the debt.

I thougjht the debt was settled on both first and second since Chase owned both loans. Please advise on how I should proceed or how I can defend myself.

Xiomara”

Hi Xiomara,

When your home is foreclosed the 1st mortgage will sell the home and take whatever proceeds that come from the sale. If the 1st gets paid in full, the remaining proceeds will go to pay off the 2nd mortgage. If the home sells for less than what is owed, the 1st will usually write off their loss, and the 2nd doesn’t get anything. The foreclosure will strip the lien that the 2nd mtg had securing their loan, which means they become an unsecured debt. The debt is basically no longer secured by that piece of property. Unfortunately you still owe the money, even though the collateral is gone.

What to do from here is completely up to you. As you have seen so far, most of the time these debts are easily settled, and usually for a tiny fraction of what was originally owed. The 10% offer is much more in line with today’s “going rate” and the 50% offer is extremely high. Many times you may even be able to settle these debts for less than 10%. My best advice if you are going to try to settle it is to start very low and set a max at what you can afford to go up to, and don’t budge. Be polite, but stern with the collector. Let them know that if they don’t work with you to offer something you can afford, than you can’t help them.

You should also consult with a bankruptcy attorney in your area as well. (especially if affording a settlement is impossible) Bankruptcy is the only legal protection from creditors available and if it makes sense could save you lots of time, frustration, and cash.

Good luck Xiomara and please keep us posted on your progress in the comment section below.

Best Regards,

Andy

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.