Tuesday, December 20, 2011

Can second bank foreclose when first loan is already modified?

Question: I have two mortgages on my home. The first was recently modified under HAMP. The 2nd lien holder sent me a letter stating that they do not participate in the government program and I was denied for a modification for 2nd. My house appraises to $300,000.00. My first mortgage is $330,000.00 after modification. I cannot afford to make my second mortgage monthly payments and am now 2 1/2 months behind. The 2nd bank is threatening to foreclose on my property even though I am paying my first mortgage. What can I do?

Response: The 2nd mortgagee (2nd lender) is an unsecured creditor because there is no equity left in your home to preserve the 2nd mortgagee's interest. If they were to commence a foreclosure proceeding right now, they will incur fees and costs for foreclosure that they would not be able to recover. If the sale took place right now, the 1st lender would get around $300,000.00 that the home appraises to and would end up losing the other $30,000.00. The second lender would get nothing at all because everything would go to the first. Therefore, the second lender is in the worse situation. Some banks choose to extinguish these debts altogether or they might try to settle with you by agreeing to a haircut on the debt you owe them. Alternatively, just because the bank does not participate in the government program does not mean they cannot offer you their own traditional loan modification. After all, it is in their best interest to do so. It is in your best interest to conduct proper negotiations with the financial institution that owns your debt.


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