Second Mortgage Settlement
If your home is underwater, meaning it is worth less than what you owe on your first mortgage, and you are behind on your mortgage payments, figuring out how to resolve your debt and avoid foreclosure is likely your top priority. In that case, you should know that second mortgage lenders (junior lien holders) tend to dislike foreclosing on real estate, especially real estate that is underwater, because they are the second lien on the property and would have to pay off the first mortgage lender (the senior lien holder) first in the event of a foreclosure. That is why, if you owe more on your first mortgage than the current value of your home and you can no longer afford to make your second mortgage payments, you may have some leverage to negotiate with the junior lien holder a lump sum payment agreement for less than what you owe on your second mortgage, a process known as second mortgage settlement. Second mortgage settlement may be a good option for you if your first or second mortgage is delinquent and you are facing foreclosure, and our experienced debt relief attorneys at Resnik Hayes Moradi LLP can help. Contact our law firm today to schedule a free debt relief consultation with our legal team.
Knowledgeable Los Angeles Debt Relief Attorneys
Much like a credit card settlement, a Los Angeles second mortgage settlement occurs when the lender and borrower come to an agreement that the lender will accept less than the amount due on the loan in order to settle the debt. If your home is underwater and you are behind on your mortgage payments, you may feel like foreclosure is imminent and there is no one to turn to for help. At Resnik Hayes Moradi LLP, our reputable Los Angeles debt relief attorneys have years of experience helping homeowners in Los Angeles and the surrounding area find the best possible solution for their financial crises, whether that means loan modifications, a bankruptcy filing or a second mortgage settlement. Keep in mind that you don’t necessarily have to have a delinquent mortgage to obtain a second mortgage settlement in Los Angeles, but the lender is much less likely to agree to a settlement on a loan that is up to date. Whatever your financial situation, our skilled debt relief lawyers at Resnik Hayes Moradi LLP can help you consider your options in terms of bankruptcy and debt settlement, so you can choose the debt relief route that best suits your needs.
What is a Second Mortgage?
A second mortgage is another loan taken out on a property that is already mortgaged, also known as a junior lien. When you take out a second mortgage on your home, you are essentially borrowing your equity, which is the value of your home minus any debt you owe on it. Many homeowners go this route after building some equity in their home, either to complete home improvement projects, to make a large personal purchase, or to pay off other debts, but it is important to remember that a second mortgage is also debt, and just like your first mortgage, you will be required to pay it back. Additionally, since a second mortgage is secured by your home, you risk losing your house if you don’t pay the loan back on time.
The majority of homeowners who take out a second mortgage on their home do so in order to complete renovations, which they expect will increase the value of their home and help them get more equity, but that is assuming the market value of the home increases. If you take out a second mortgage and the value of homes in your area plummets, you could end up with negative equity in your home, which is an extremely difficult situation to be in. If your home has negative equity and you are delinquent on your second mortgage, or if you are significantly behind on other debts, such as student loans or tax debts, you may benefit from second mortgage settlement, which can help you settle the debt by paying only a fraction of what you owe.
Why the Current Value of Your Home is Important
If you are no longer making payments on your second mortgage, the lender may decide to foreclose on your home, depending on how much your home is currently worth. Generally, the more equity you have in your home, the more likely it is that the lender will pursue foreclosure if you stop making payments on your second mortgage. If your home is underwater, it is unlikely that the junior lien holder will receive any money from foreclosure, so it may be in both your best interests to negotiate a second mortgage settlement agreement. If you can convince the second mortgage lender that your settlement offer is the best possible outcome, the lender may accept your deal and allow you to pay only a small portion of the balance on the loan.
Home Equity Loans and HELOCs
There are two main types of second mortgages: a home equity loan and a home equity line of credit (HELOC). Much like a first mortgage, a home equity loan is a lump sum of money you receive upfront and agree to pay back by making standard monthly mortgage payments. A home equity line of credit, on the other hand, is more like a credit card with a maximum limit that you can withdraw funds from as needed. The “draw” period for a HELOC is typically ten years, with total payment on the line of credit due in twenty years, and as you make payments on the HELOC, the funds are made available to you again and again.
Why Settle a Second Mortgage?
Second mortgages are risky because the loan is secured by your home, and if you lose your job or suffer a medical emergency that leaves you with costly medical bills, you could end up buried under a great deal of debt, unable to make payments on your first or second mortgage. If you have a second mortgage on your home in Los Angeles and you have fallen behind on your payments, you may be able to negotiate a debt settlement with the junior lien holder, which could help reduce your second mortgage debt and release the lien on your property. Depending on how long the loan has remained unpaid, the lender may be amenable to a second mortgage settlement, rather than foreclosing on the home, suing you to collect on the debt or risk you walking away and being stuck with a house that is underwater. By retaining a knowledgeable debt relief attorney and taking the following steps, you may be able to successfully settle your second mortgage:
- Contact the lender directly to discuss the possibility of paying back the debt
- Make a settlement offer that you are comfortable paying
- Remind the lender that the debt can be wiped out if you file for bankruptcy protection
- Put the settlement agreement in writing before you make any payment
It is the goal of a lender to maximize the amount of profit it can make on a loan and a second mortgage on a home that is underwater holds very little value for a second mortgage lender, which is the main reason a lender would accept a settlement. If your home is underwater and you can no longer pay your mortgage, your lender can force a foreclosure sale, but the sale of the home would not even be enough to pay back the first mortgage lender, which means the junior lien holder would be left with nothing. Upon agreeing to a second mortgage settlement, in return for a lump sum partial payment on the loan, the lender releases any claim it has against you regarding the debt and relinquishes its right to pursue payment for the unpaid portion at any time in the future.
Second Mortgage Settlement vs. Bankruptcy
For many individuals struggling with a great deal of overwhelming debt in Los Angeles, filing for Chapter 7 or Chapter 13 bankruptcy is a better solution than negotiating a debt settlement agreement with their creditors. For one, bankruptcy is generally faster than debt settlement. It can also effectively wipe out or reorganize your mortgages, car loans and other types of debt, and it ensures that creditors will work with you and the court to resolve the debts. On the other hand, there are certain situations in which debt settlement is a more reasonable solution than bankruptcy. For instance, if you have just a few debts, you have the resources necessary to make a lump sum payment, and your creditors are willing to work with you to settle the debts, debt settlement can be a cheaper and more effective solution than a bankruptcy filing.
Chapter 13 Lien-Stripping
Before attempting to negotiate a settlement on the second mortgage in Los Angeles, consider the possibility of filing a Chapter 13 bankruptcy, which could remove the lien from the property. Secured debts are paid in Chapter 13 bankruptcy, but if your home is worth less than the balance on your first mortgage, the mortgage lien is no longer secured, and the bankruptcy court may be able to strip the lien from the property. You may even be able to use this as leverage when discussing a second mortgage settlement with the junior lien holder, in order to motivate the lender to accept your settlement offer when bankruptcy appears to be the only other option. When considering second mortgage settlement as an alternative to bankruptcy, it is always a good idea to consult a knowledgeable debt relief attorney with experience handling bankruptcy and debt settlement cases in Los Angeles and the surrounding area.
Credit Consequences of a Second Mortgage Settlement
If you are behind on your mortgage payments and considering a second mortgage settlement in Los Angeles, it is important to understand the consequences that missed payments and a debt settlement can have on your credit score. Foreclosures and collection actions can remain on your credit report for seven years, and missed mortgage payments will also have a negative effect on your credit, which is why we recommend finding a debt relief solution that works for you as quickly as possible. Filing for bankruptcy or settling your second mortgage isn’t the end of the world and it doesn’t mean you won’t be able to obtain credit or get a mortgage loan in the future. By consulting a knowledgeable debt relief attorney and taking steps towards obtaining real debt relief, you can finally get out from under your growing debt and rebuild your credit over time.
How Our Attorneys Can Help
Because a second mortgage settlement and a Chapter 13 bankruptcy filing are both viable options for homeowners who have negative equity and are delinquent on their second mortgage, it is important to contact an attorney who can accurately assess your financial situation and advise you on the best possible solution for you and your family. Our debt relief attorneys at Resnik Hayes Moradi LLP know how devastating it can be to struggle with overwhelming debt and fall behind on mortgage payments, and we will do everything we can to help you keep your home, resolve your debt and take control of your finances. Together, our attorneys have more than 50 years of legal experience and over the years, we have helped thousands of clients in the Los Angeles, Riverside, San Fernando Valley, San Bernardino, and Orange County communities find relief from debt.
Contact Our Los Angeles Debt Relief Attorneys Today
Debilitating debt, bankruptcy, and foreclosure are all issues that homeowners in Southern California and across the country face every day. What many homeowners in Los Angeles don’t realize is that they may be able to negotiate the balance on their second mortgage and pay a fraction of what they owe in order to remove a junior lien from their property. If you are behind on your mortgage payments and your home is worth less than what you owe on your first mortgage, there are proactive steps you can take to resolve your second mortgage debt and avoid a foreclosure or a debt collection lawsuit. Law Offices of I Los Angeles bankruptcy attorneys with trusted Los Angeles debt relief attorneys at Resnik Hayes Moradi LLP have years of experience helping clients avoid foreclosure proceedings and wipe out their debt for good, and we can help you, too. Contact our legal team today to find out how you can obtain real debt relief through a second mortgage settlement.
“The bankruptcy attorneys at Resnik Hayes Moradi LLP provided us the peace of mind I so desperately needed. I was not sure what to do and I felt like I was at the end of my rope. They were there the entire step of the way and gave me the necessary information I needed to make the right choice for my family.” – Dave B.