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I have a similar case we are working on right now. I think you are leaving something out of the picture - because you said they charged off the loan, and now they are threatening to foreclose.
I am willing to bet they did charge off the loan, but they sold the loan to a debt collection company. Now the debt collection company is starting to make your life impossible.
You are right about the 2nd lender not be able to do anything, because they are behind the 1st lender in lien holders position. Right now they are all talk.
Worst case if you do nothing, they could take your case in court (normally in a year time frame), and file for a judgment. Once there is a court awarded judgment, it becomes much harder to negotiate a lower settlement. Also once a judgment is listed on your credit report, if you buy anything in the future, you will have to pay that off before buying a new piece of property.
What I have seen through our office, when there are second mortgages involved. Most of the time these amounts are negotiated to a lower amount. Had a lady the Amityville NY, had her 1st mortgage modified to a lower payment, due to her income she could not afford the payment on the second mortgage. She originally owed $79k, they agreed to settle at $9k. Another example - the 2nd lender reduced the principle down from $96k, to $18k with payments structured over 30 years.
Why are they easy to negotiate to a lower amount - if you are threatening them you are going to foreclosure and they are no going to get anything. Apparently your attorney did not do a good job negotiating.
jib88fer mentions a short sale - doing a short sale is the wrong way to walk away from a home.
Correctly done, if you want to walk away from your home with no ramifications later on (as in a deficiency judgment). The best way is through a deed in lieu. A loan modification is attempted to save the home, then if it
can be proved you cannot afford the home, then the home owner is released free and clear of the mortgage.
With a short sale - the property is attempted to be sold for three months. If it doesn't sell, then it can continue into foreclosure, destroying a persons credit. Plus subject to a deficiency judgment later.
If you really would to stir the honey in the beehive, mention to your 2nd lender you are considering bankruptcy. Though honestly do not like to even consider bankruptcy because it will destroy your credit, but is one of your options.
A Chapter 13 to help you eliminate the payments on your second mortgage. That's because if your first mortgage is secured by the entire value of your home, which is possible if the home has dropped in value, you may no longer have any equity with which to secure the later mortgages. That allows the Chapter 13 court to
"strip off" the second mortgages and re-categorize them as unsecured debt -- which, under Chapter 13, takes last priority and often does not have to be paid back at all.
Through the years I have spoken to 100's about repairing and keeping a good credit score. It is so important to have good credit if you want low payments. When I work with people like to assign three priorities - first saving your home and getting the lowest possible payment, 2nd legally eliminating the unsecured debt, and 3rd working on a plan to rebuild your credit. When a person is younger, it is easier to fix their credit. When a person is more mature, it is harder (not impossible) to correct ones credit report.
I might be able to comment on another option next week - will be going through training on Principle Mortgage Reduction Refinancing for under water properties. Then I might have other options to suggest to you.
Sorry - I went a little off on the length......
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