Advantages of Negotiating A Better Arrangement on Your 2nd Mortgage

We define a troubled second mortgage as a loan which is totally under water, or close to it. How you manage a problem second mortgage is dependent upon your ultimate objectives with the property. If this is your primary dwelling, and you would like to stay in the home, your goal will lead to a methodology designed to take care of the loan without the need for risking foreclosure. However if it’s a rental property already lost to foreclosure and the 2nd lender is attempting to get you to pay up, that would lead to a different collection of tactics.Determine your objective first - Assess your goal for the home associated with the second mortgage. Whether it’s a primary home or a rental property, you need to choose whether you would like to keep the home, sell it, or just move on.Staying in the home - If the goal is to keep the property, then both loan modification and settlement (i.e., principle balance reduction) ought to be evaluated. In order to avoid foreclosure with the main lender, the 1st mortgage should be maintained, or allowed to slip no farther than 60 days overdue.Selling the property - If your goal is to sell the home, then a short sale should be considered. Obtain a local realtor certified in short sale transactions to help in the process. The second mortgage can be settled as part of the short sale procedure.Walking away - If the property is already lost to foreclosure, or has been deserted because of significant negative equity or cashflow deficit, then the remaining issue with the 2nd lien becomes the recourse deficiency. These can be resolved when funds become available, to prevent possible future litigation with the Statute of Limitations period.CAUTION: SECOND MORTGAGES are almost always RECOURSE loans, meaning the bank can engage in collection even after the home has been lost to foreclosure. That’s what makes them different from 1st mortgages.UNRESOLVED SECOND MORTGAGES are a possible legal risk for years to come, and will also have an impact on your debt-to-income ratio and therefore hinder your ability to acquire future financing.Here are some of the advantages of a second mortgage or HELOC settlement:1. Removes the second lien on your property, improving your likelihood of a successful sale or short sale.2. Lowers principle balance , oftentimes by 80% or more.3. Takes away long-term risk of a deficiency judgment.4. Removes the balance from your debt-to-income ratio, which improves your overall credit worthiness in the eyes of future lenders.5. Provides you with peace of mind knowing you've got a documented resolution without any further liability.PLEASE NOTE: The material presented in this article is not intended to substitute for professional legal or real estate counsel. It is strongly recommended that consumers seek the advice of a competent, local, legal professional. Consumers seeking to avoid foreclosure by way of the short sale method should seek the assistance of a local real estate professional that specializes in short sale transactions.

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