What is 2nd Mortgage Settlement?
It is the process by which you and your mortgageholder agree that you will pay them less than you owe them in exchange for them fully releasing their claim against your for that debt.
In any settlement situation, a creditor must be incentivized to take less than they are owed because such an action seems contrary to their own interests. To understand 2nd mortgage settlements and why creditors accept them, you must first learn a little about how bankruptcy affects the process.
If you are a homeowner with a 2nd mortgage, you likely took it out when property values were on the rise. Your lender lent you money in exchange for a 2nd mortgage because you had equity in your house, meaning that your house was worth more than you owed on your 1st mortgage. They were willing to lend you the money because they could get it back by forcing a sale of your home if you did not repay them.
However, as property values declined, your lender began to lose their security interest in your home. Where once a sale of your home might have been enough to pay off both the 1st and 2nd mortgageholder, now a sale might not even produce enough funds to pay off your 1st mortgageholder, thus leaving the 2nd mortgageholder with nothing. Since the 2nd mortgageholder stands to recoup no funds in a foreclosure, it can no longer be said to be secured, since the secured asset is of insufficient value to act as security.
In bankruptcy, there is a legal process for getting your 2nd mortgage to be declared unsecured. It is done as part of a Chapter 13 bankruptcy, and the effect is that the 2nd mortgageholder is treated as an unsecured creditor rather than a secured creditor. This bumps them to the bottom of the repayment priority list, where they will receive little, if any, payment on the debt.
2nd mortgageholders are well aware of the potential to lose out on their claim in a Chapter 13 bankruptcy, and also know that even people who are financially healthy will sometimes file Chapter 13 bankruptcy just to get their 2nd mortgage extinguished. It is this acute awareness that incentivizes them to settle with someone who has not yet filed bankruptcy, but who might do so to extinguish their 2nd mortgage. When faced with the proposition of an impending bankruptcy by a borrower, 2nd mortgageholders suddenly become very willing to take anything, even pennies on the dollar, to avoid getting nothing at all.
Q: Is Second Mortgage Settlement right for me?
A: There are a number of factors in determining whether 2nd mortgage settlement is right for you.
First, you must own a home and have a 2nd mortgage.
Second, your house must be worth less than you owe on your 1st mortgage, such that your 2nd mortgageholder would receive nothing if they foreclosed on your home.
Third, you must be delinquent on your 2nd mortgage, or willing to stop paying on it so as to become delinquent. This will catch the lender’s attention and start them worrying about your financial situation, your ability to repay and your intentions regarding bankruptcy.
Finally, Chapter 13 must not be a better option for 2nd mortgage settlement to make sense. While the settlements are usually for very low percentages, the total out-of-pocket might be more than a Chapter 13 without the additional relief that a Chapter 13 bankruptcy case would provide if you have significant other debts.
Basically, it makes sense if you are a homeowner with a 1st and 2nd mortgage whose house is worth less than you owe on the 1st, but you have little other debt.
We recommend that you retain a bankruptcy attorney’s office to show that you are seriously considering or have decided to begin the bankruptcy process. After all, actions speak louder than words, right?
Q: Do you service my location?
A: We service all of California, with offices in Sherman Oaks, Long Beach, Ontario, Lancaster and Los Angeles.
If it is not convenient to visit one of our offices, we can handle your entire case by phone and email! Please give our office a call for a free consultation.
There is no set fee for handling your 2nd mortgage settlement because we are compensated based on how much work we put into your case.
The best measure of how much work we put in is how much money we save you. The reason for this is that your lender is going to have its own negotiator who is trying to do the opposite of what we are trying to do: we will be trying to save you the most money and he or she will be trying to save the lender the most money. The settlement we get you is largely dependent on how hard we work to grind and wear down the lender’s negotiator.
And since our fees are only a fraction of what we save you, the more we save you, the better off we both are.
Why Wadhwani & Shanfeld?
You’ll need someone with experience guiding you through such a sensitive process. This is for several reasons. First, these debts are large. They’re second mortgages! We have the system set up to handle funds in a competent, efficient and responsible manner. Not only can we handle the enormity of the debt, but we understand that this is your home, and as such, makes you more nervous than any other unsecured debt. We understand balancing the need to be savvy in this economy as well as protect your interests for your family. Accordingly, we use our relationships with the creditors to instruct you throughout the whole process.
With convenient offices located throughout Southern California, we are never far. We can also handle most matters by phone and e-mail.