“Dear Steve,
My California house is upside down and I have lost my job and almost out of savings. I have $160K on my first mortgage and $320 on my second. The house is only worth about $350. The payment on the 1st is $1200 but the second is $2800 and killing me. I can make money but no point paying unless I can get the second reduced or eliminated. I also have $55k credit card debt.
I have a relative offer $50k to help me out but I don’t see any way. Can I keep my house?
Paul”
Dear Paul,
Interesting situation. We need to treat this as two different situations.
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Let’s look at the house first. You are so upside down on the house that I doubt a fair or reasonable loan modification plan would be offered by the second mortgage company. However, if you have not done so already, contact them and see what help is available.
The second situation is the credit card debt. Don’t take the money from your relative if you care about them. Here’s why. In your current situation, unless we solve the mortgage problem, taking the money for the credit card debt still leaves you with a huge anvil hanging over your head, the mortgage situation. If that isn’t resolved you could still potentially lose the house, your credit would be shot and paying off the credit card debt would have provided little benefit to resolving the overall situation.
I think you really need to go talk to a couple of local bankruptcy attorneys about a Chapter 13 bankruptcy. The Chapter 13 bankruptcy has been used in California, and elsewhere, to strip away wholly unsecured second mortgages when the house value falls like your has. (Source) In that case the Chapter 13 bankruptcy would also provide a resolution and remedy to the credit card debt.
So it seems that looking closely at bankruptcy is going to provide you with a solution that will encompass both situations. It will help to remedy the mortgage issue and provide a resolution for the credit card debt. And you can do this without taking any cash from your relative.
