Benefits of Negotiating A Better Arrangement on Your Second Mortgage

We define a distressed second mortgage as a loan which is 100% under water, or close to it. The way you address a problem second mortgage depends upon your ultimate intentions with the property. If this is your main dwelling, and you aspire to stay in the home, your goal will result in a methodology designed to manage 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 goal first - Assess your goal for the property associated with the second mortgage. Whether it’s a main home or a rental property, you need to decide 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 from 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. Locate a local realtor skilled in short sale transactions to assist with the process. The 2nd mortgage can be settled as part of the short sale process.Walking away - If the home has already been lost to foreclosure, or is being abandoned as a result 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 almost 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 potential 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 likelihood 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 material 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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