Advantages of Negotiating A More Favorable Arrangement on Your Second Mortgage

We define a distressed 2nd mortgage as a loan that is totally upside down, or close to it. How you address a difficult 2nd mortgage depends on your ultimate plans for the property. If this is your principal residence, and you aspire to remain in the home, your goal will result in a methodology designed to manage the loan without risking foreclosure. But if it’s a rental property already lost to foreclosure and the second loan provider is trying to get you to pay up, that would lead to a different collection of tactics.Determine your goal first - Assess your goal for the home linked to the 2nd mortgage. Whether it’s a primary home or a rental property, you must determine whether you would like to keep the property, sell it, or merely walk away.Remaining in the property - If the goal is to keep the property, then both loan modification and settlement (i.e., principle balance reduction) should really be evaluated. To avoid foreclosure by the main lender, the 1st mortgage should be maintained, or allowed to slide no farther than 60 days past due.Selling the property - If the goal is to sell the home, then a short sale should be considered. Obtain a local realtor certified in short sale transactions to help with the process. The second can be handled as part of the short sale procedure.Walking away - If the property has already been lost to foreclosure, or will be deserted as a result of considerable negative equity or cashflow deficit, then your remaining issue with the 2nd lien becomes the recourse deficiency. These should be resolved when resources become available, to prevent possible future legal action with the Statute of Limitations timeframe.CAUTION: SECOND MORTGAGES are nearly always RECOURSE loans, meaning the bank can pursue collection activity even after the property has been lost to foreclosure. That’s what makes them quite different from first mortgages.UNRESOLVED SECOND MORTGAGES are a possible legal risk for many years to come, and can also affect your debt-to-income ratio and as a consequence impair your ability to acquire future financing.Here are some of the advantages of a second mortgage or HELOC settlement:1. Eliminates the 2nd lien on your property, improving your likelihood for a successful sale or short sale.2. Decreases principle balance , in many cases by 80% or more.3. Wipes out long-term risk of a deficiency judgment.4. Removes the balance from your debt-to-income ratio, which helps to build your overall credit worthiness in the eyes of lenders in the future.5. Gives you peace of mind knowing you possess a documented resolution with no further liability.PLEASE NOTE: The information presented in this article is not intended to substitute for professional legal or real estate counsel. It is strongly recommended that consumers seek the counsel of a competent, local, legal professional. Consumers seeking to avoid foreclosure via the short sale method should seek the assistance of a local real estate professional who specializes in short sale transactions.

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