Benefits of Negotiating A More Favorable Arrangement on Your Second Mortgage

We define a troubled second mortgage as a loan that is 100% under water, or near to it. The way you handle a problem second mortgage is dependent upon your ultimate objectives for the property. If this is your primary dwelling, and you aspire to stay in your home, that goal will result in a methodology intended to manage the loan without the need for risking foreclosure. However 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 result in a different set of tactics.Identify your intention first - Assess your goal for the home linked to the second mortgage. Whether it’s a primary home or a rental property, you must decide whether you would like to keep the home, sell it, or simply move on.Remaining in the property - If the goal is to keep the home, then both loan modification and settlement (i.e., principle balance reduction) should really be evaluated. To avoid foreclosure with the main lender, the first mortgage needs to be kept up, or allowed to slide no farther than 60 days overdue.Selling the property - If your goal is to get rid of the home, then a short sale should be considered. Obtain a local realtor certified in short sale transactions to assist with the process. The 2nd mortgage can be resolved as part of the short sale process.Walking away - If the home is already lost to foreclosure, or will be abandoned because of considerable negative equity or cashflow deficit, then your remaining issue with the 2nd lien becomes the recourse deficiency. These should be resolved when funds are available, to eliminate possible litigation in the future with the Statute of Limitations timeframe.CAUTION: SECOND MORTGAGES are almost always RECOURSE loans, meaning the lender can pursue collection activity even after the property has been lost to foreclosure. That’s what makes them rather different from 1st mortgages.UNRESOLVED SECOND MORTGAGES are a possible legal risk for many years to come, and will also affect your debt-to-income ratio and therefore hinder your ability to acquire future financing.Here are a few of the advantages of a second mortgage or HELOC settlement:1. Removes the second lien on your property, improving your likelihood for a successful sale or short sale.2. Decreases principle balance liability, in many cases by 80% or more.3. Eliminates long-term 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. Provides you with peace of mind knowing you've got a documented resolution with no 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 who specializes in short sale transactions.

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