Foreclosure Due to Second Mortgage

Foreclosure due to second mortgage is a real possibility if you do not pay the bills for your home as required. Many people take a second mortgage to pay down other debts or to finance home improvements. Some people also took out a second mortgage when they initially bought their home, taking advantage of an 80-20 loan to borrow the full amount of the value of the home.  An 80-20 loan means borrowing 80 percent of a home’s value on a first mortgage and 20 percent on a second mortgage. 
Regardless of why you took out a second mortgage on your home, you generally need to ensure you pay both your first and second mortgage in full each month. If you do not, foreclosure due to second mortgage could occur.  However, there are some important differences between a first and a second mortgage and in some circumstances, you may be able to keep your house even without paying your second mortgage as promised.
A Melville, NY bankruptcy lawyer can help you explore ways to avoid foreclosure due to second mortgage. Call Ronald D. Weiss, P.C. today to speak with someone who can help you.

Avoid Foreclosure Due to Second Mortgage

When you take a first or a second mortgage, the lender has a lien on your home. Because your house is collateral and your lender has a security interest in it, the lender could take the home if you do not pay.
The first mortgage lender has the primary claim on the home. If either the first or the second mortgage holder institute foreclosure proceedings because you do not pay, then the home will eventually be sold unless you get current on payments. The proceeds from the sale first go to the first mortgage holder and anything left over goes to the second mortgage holder.
Filing for bankruptcy is not going to fix this problem.  If you do not pay back the money you owe to your mortgage lender, you do not generally get to keep your house. If you file for Chapter 13, your mortgage payment has to be included in your payment plan. If you file for Chapter 7 and have debts discharged, then you still have to reaffirm your home loan and pay as promised. If you fail to get current and pay as required under either chapter of bankruptcy, you do not get to keep the home.
For some second mortgages, however, there is an exception to this rule. If you file for Chapter 13 bankruptcy, you may be able to use a process called “lien stripping” to have the second mortgage debt reclassified as unsecured property. Essentially, this means the lender would lose the claim on your house and would be treated just like any other creditor and included in a Chapter 13 repayment plan. This could result in the second mortgage lender getting paid back less than what is actually due and allowing you to keep your home. Foreclosure due to second mortgage would no longer be possible.
Lien stripping is allowed only if your home is not worth enough to pay back any portion of the second mortgage if the house was sold. For example, if you owe $150,000 on a first mortgage and $50,000 on a second mortgage but your home is worth only $125,000, then the first mortgage holder would have full claim to the $125,000 when the house was sold at auction. The second mortgage holder would get nothing, even after foreclosure.
In this situation, the second mortgage debt is actually unsecured despite the lender’s claim that there is a lien. Lien stripping reclassifies the debt as unsecured, which it is, and can allow you to avoid foreclosure due to second mortgage.
Ronald D. Weiss, P.C. has extensive experience with lien stripping. Call today to speak with a Melville, NY bankruptcy lawyer who can help protect your house.