Advantages of Negotiating A Better Deal on Your Second Mortgage

We define a distressed 2nd mortgage as a loan which is totally under water, or close to it. How you address a difficult 2nd mortgage is dependent upon your ultimate objectives for the property. If this is your principal residence, and you would like to remain in your home, that goal will result in a strategy designed to remedy the loan without risking foreclosure. However if it’s a rental property already lost to foreclosure and the second lender is making an attempt to get you to pay up, that would result in a different collection of tactics.Establish your intention first - Assess your goal for the home connected with the 2nd mortgage. Whether it’s a main home or a rental property, you must decide whether you intend to keep the home, sell it, or just walk away.Staying in the property - If the goal is to retain the home, then both loan modification and settlement (i.e., principle balance reduction) should be considered. In order to avoid foreclosure by the main lender, the first mortgage should be maintained, or allowed to get no farther than 60 days late.Selling the home - If your goal is to sell the home, then a short sale should be considered. Obtain a local realtor authorized in short sale transactions to help in the process. The 2nd mortgage can be handled as part of the short sale process.Leaving - If the property is already lost to foreclosure, or has been abandoned as a consequence of tremendous negative equity or cashflow deficit, then the remaining issue with the 2nd lien becomes the recourse deficiency. These can be settled when resources become available, to avoid possible litigation in the future 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 rather different from first mortgages.UNRESOLVED SECOND MORTGAGES are a possible legal risk for years to come, and can also impact your debt-to-income ratio and as a consequence impede your ability to obtain future financing.Here are some of the benefits of a second mortgage or HELOC settlement:1. Eliminates the 2nd lien on your property, improving your chances for a successful sale or short sale.2. Decreases principle balance liability, in many cases by 80% or more.3. Takes away long-term legal 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 possess a documented resolution without any further liability.PLEASE NOTE: The information presented in this article is not intended to substitute for professional legal or real estate advice. It is strongly advised 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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