Benefits of Negotiating A Better Agreement on Your Second Mortgage

We define a distressed second mortgage as a loan which is completely under water, or near to it. The way you address a problem second mortgage depends upon your ultimate intentions with the property. If this is your main residence, and you aspire to stay in the home, that goal will lead to a methodology designed to remedy the loan without risking foreclosure. However if it’s a rental property already lost to foreclosure and the second lender is seeking to get you to pay up, that would result in a different collection of tactics.Determine your goal first - Assess your goal for the property 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 property, sell it, or just walk away.Staying in the property - If the goal is to keep the home, then both loan modification and settlement (i.e., principle balance reduction) should be evaluated. To avoid foreclosure by the main lender, the first mortgage needs to be maintained, or allowed to slip no farther than 60 days past due.Selling the property - If the objective is to unload the home, then a short sale should be considered. Find a local realtor skilled in short sale transactions to help with the process. The 2nd mortgage can be settled as part of the short sale procedure.Walking away - If the home has already been lost to foreclosure, or is being abandoned because of significant negative equity or cashflow deficit, then your remaining issue with the second lien becomes the recourse deficiency. These can be taken care of when funds are available, to avoid potential future legal action with the Statute of Limitations timeframe.CAUTION: SECOND MORTGAGES are pretty much always RECOURSE loans, meaning the lender can engage in collection activity even after the home 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 may also have an effect on your debt-to-income ratio and thus impede your ability to acquire future financing.Here are some of the benefits of a second mortgage or HELOC settlement:1. Gets rid of the second lien on your property, improving your chances of a successful sale or short sale.2. Decreases principle balance , in many cases by 80% or more.3. Eliminates long-term legal risk of a deficiency judgment.4. Removes the balance from your debt-to-income ratio, which elevates your overall credit worthiness in the eyes of future lenders.5. Gives you peace of mind knowing you possess a documented resolution with no further liability.PLEASE NOTE: The information provided in this article is not intended to substitute for professional legal or real estate counsel. It is strongly advised 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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