How can I get a loan modification and eliminate my second mortgage? One of the most difficult aspects of loan modification involves second mortgages. Before the market fell, many lenders offered 100% financing programs, through the program 80/20. A first mortgage would be given for 80% of the selling price and a second mortgage would be granted for the additional 20%. When lenders began foreclosure proceedings, the second mortgages were often written off as losses from property values have declined so rapidly. In an effort to stall seizures, many owners will declare bankruptcy before the sale date, which, in essence, held up the limit for a few months.
Bankruptcy laws allow judges to approve modifications of certain loans and even give them the power to remove or "strip" the second mortgage lien. This process is approved only under certain circumstances. It is available to those who are trying to reorganize their debts under a Chapter 13 bankruptcy. A Chapter 13 allows the court to reorganize debt people, but they can not change a mortgage firm. There are certain sections of the bankruptcy laws which clearly indicate that the debt or lien is secure in that the value of the asset. If there is a second mortgage that exceeds the value of the property, the debt is technically not guaranteed.
If you purchased a program with 100% financing, or if you got a second mortgage before the market crash, you get a fair chance if they were removed. The court will likely require an assessment to determine the value of existing property and it is possible that your second mortgage company may file a motion to oppose it. This is not the norm, but it can happen. Once you have the approval of the court and have made your payment plans you can get a discharge from the court, in essence, shut down the second mortgage.
Many laws vary from state to state. Before you file any kind of bankruptcy, it is in your interest to consult a lawyer specializing in bankruptcy. Each case is different and there is no one size fits all plan during the change.
Posted on March 25, 2010.
