[khutchinsk]

...mortgage? I wanted to know if you could help me and my wife. We have an 80/20 mortgage with 2 separate mortgage companies and currently owe $245,461.01 on the first mortgage (at 7.3%)and $57,896.97 for the second mortgage (at 12.5%) for a total of $303,357.98. My problem is the houses on our street that are identical have sold recently for only $259,900 and we owe $43,457.98 more than we could even sell the house for. We are unable to pay both the 1st and 2nd mortgage due to our financial situation. We were wondering what would happen if we stopped paying the 2nd mortgage? We have tried to renegotiate with both mortgage companies and they refuse to do anything to help us. We have 3 small children and just are afraid of losing our home and a place to live. I hope you can give me some advice.

[Chris D]

the house is colateral for both loans. I do not believe they can forclose on the home if you default on the second loan, but they will put a lien against the property. This lien will be the first thing satisfied if the proprty is sold. So you would not be free of a negative equity situation until/if the housing market rebounds. Contact a legit debt management company to help negotiate with the lenders. Trust me, they do not want antoher forclosed property on the books. Also, there have been some recent government programs that may help you if you are not already late on your payments.

in the end, you may need to be prepared to walk away from the property.

Good luck

[Lakerman]

Hi, you didn't say if you were current with the payments. If so, try to refinance the whole thing, but you may need to make up the difference being upside down in equity, any other sources of funds? Credit cards (unsecured debt) might help if you can qualify for a new loan. A credit card can be lower than your second!

If you don't pay the second the lender can foreclose, they will have to payoff the first mortgage to protect thier interest. If the second is an individual, like the seller, they may not be in a position to payoff the first.

You need to put the place up for sale! It will not be the end of the world, but I know that's hard to swallow, but even if it is not sold, the lender will see that it won't sell. Down side, there is a deficiency judgement that can follow you if the loans are not paid off, I might also suggest to avoid a deficiency judgement (an amount you will still owe the lender after the property is sold) you give a deed-in-lieu-of-foreclosure, this is a quit claim deed to the lender(s), both can be named or just the one on the first (if the second is an individual).
Can you take on a second job? Will rent pay both loans? Maybe you could take in a college student in the basement or spare room, I know that's desprite, but....
When negotiating with lenders, leave out the emotional stuff, like you kids will be on the street, it has no bearing on the matter, hit them where it hurts, as a bad business move, modify the note and trust deed for 360 months, consolidate the second in the first, or otherwise refinane, those are the only options. Also, bankruptcy will only prolong the matter, it is a secured debt, but the court can do what is called a "cram down" lowering interest rates, or reducing principal, see an attorney with experience in this area, not one who simply takes on bankruptcies as ambulance chasers do. The attorney to take you on might be one who represents creditors (banks) from other institutions not involved in your case. Regardless of what an attorney tells you, it will be two years after bankruptcy before you can qualify for a new mortgage, real life 3 to 4, because the mortgage is the most important credit issue they look at. You could offer to reaffirm say 90% of the mortgage in bankruptcy court at current rates, which might put the court on the track for the cram down.
Sorry to hear your stiuation, but that's about it. Good luck! B