Mortgage Debt Settlement

Mortgage Debt Settlement

Sacramento Mortgage Debt Settlement Attorney

There are two scenarios where you may need or want to settle your mortgage debt, we are experienced with both and will explain each of the two scenarios and how we can assist you.

#1- Sacramento Mortgage Debt Settlement-Keeping Your Home

If you have a first and second mortgage on your home and your second mortgage is what is referred to as “wholly or mostly unsecured” then you may be a good candidate, depending on your lender, for a mortgage debt settlement.

What is a Mortgage Debt Settlement?

A mortgage debt settlement is where you offer the lender a lump sum of money in order to settle the loan and in exchange the lender should consider that payment as full and final satisfaction for the debt.  In other words the debt will be settled and the lender will also remove the lien from the property.   It is extremely important that you have an experienced mortgage debt settlement attorneys assistance in negotiating this settlement as there are a lot of complicated issues to navigate and then make sure they are properly documented in writing from the lender.  A reconveyance will also need to be filed with the county, not all lenders will act in good faith even after receiving your lump sum.

In addition your credit report should be updated with the current status of the loan so that it is no longer showing as a debt that is owed but will instead say something to the effect of “paid in full for less than full.”

This could be a taxable event depending on your financial situation and the current IRS exceptions that are available to use and that you qualify for.

This is an excellent choice for those who are in homes that are upside down but would like to remain in them.  It is less expensive typically than filing a Chapter. 13 and trying to strip the 2nd loan if that loan is entirely wholly unsecured.

What does Wholly Unsecured Mean?

Wholly unsecured indicates that the 2nd or 3rd lien holder on the property in the event of a foreclosure by the senior lien holder would get $0 through a foreclosure action.  This means that all of the proceeds resulting in a foreclosure sale would go entirely to the senior lien holder leaving nothing for the junior lien holder.

Example;

Your home’s market value is $350,000.  You have a first loan with Chase for $400,000 and a second loan with Green Tree for $75,000.  The total amount you owe on the home is $475,000 yet the market value based on an appraisal or area comparables is $350,000.  If your first lender, Chase, were to foreclose on your home due to delinquent payments the second lender, Green Tree would not get anything from the resulting foreclosure.  This is because Chase is likely to receive much less even than the market value of $350,000 because foreclosures often sell for less and because there will be costs they have to recoup.  Since Chase has a priority lien for $400,000 and they will be getting less than $350,000 there is nothing left to go to Green Tree.  Hence Green Tree’s lien is considered wholly unsecured.

In this situation you would be an excellent candidate for a mortgage debt settlement where a negotiation would commence that we would handle on your behalf and we would negotiate with Green Tree for them to accept a lump sum.   The process is similar to a short sale but with less documentation.  A hardship letter explaining your circumstances will need to be carefully drafted and it is possible that you will need to be late on payments to the 2nd and sometimes even the 1st to show the 2nd that you are experiencing a hardship making your mortgage payments and that it is likely that your home may foreclose.  Occasionally we may also need to qualify you for bankruptcy to show the lender that they won’t get anything should they refuse to settle, the home foreclose and if you file for bankruptcy.

If your junior lien is mostly secured a mortgage debt settlement is still possible, but the amount offered will likely need to be much more as the lender will run the numbers and see that it wouldn’t make sense to accept a settlement that would give them more than they may get in a foreclosure.

Recourse vs. Non-Recourse:

Most mortgage loans in California are classified as non-recourse (if you did not refinance or take money out for ANY reason). If you default on a non-recourse loan, the lender can only repossess the home, through a foreclosure. Lenders cannot then hold you personally liable for the debt. However, a foreclosure will affect your credit. With a recourse loan, the lender can seek a judgment to obtain the deficiency balance after a foreclosure. What this means for those who wish to settle their junior lien is that settling a recourse debt will be more difficult.

Example;

Using the same above scenario say the second loan with Green Tree was taken out after you initially purchased the home with the 1st loan from Chase.  You took the money out in order to improve the property.  You installed a new roof, did some landscaping and put a pool in the backyard.  This makes your second loan recourse and Green Tree will know this as they can see the loan was taken out after you purchased the property initially.

In the above example should Chase foreclose on your home even though Green Tree will not get anything from the foreclosure proceeds they CAN and WILL sue you for the entire deficiency amount including attorney costs, etc.   This means that anywhere from a few months to a few years after the foreclosure you will be served with a lawsuit from Green Tree.  They will then move for a default judgment for the entire amount asked for and can then seek to garnish your wages, levy your bank accounts, repossess any automobiles you have that have equity and lien any other property that you may have in order to get paid on their judgment.

This is not a good situation to be in and you want to avoid it.  However you can see how it can make settling more difficult because the lender knows they can come after you.  This is why it is even more important to use an experienced mortgage debt settlement attorney who can explain and show the lender why they won’t get anything from you even if they try to sue you.

We have helped many clients settle their junior liens and stay in the home and they were ecstatic.  Please contact our mortgage debt settlement attorneys today for a free consultation to see how they can help you.

#2- Sacramento Mortgage Debt Settlement-Settling a Lien After The Home Has Foreclosed

In this scenario your home was foreclosed on by your senior lien holder and you had a recourse second or third loan.  You will need to settle with the lender BEFORE they sue you. Once they sue you it is much harder to get a decent settlement.   If you aren’t able to settle them they will sue you, receive a judgment and be able to garnish your wages, levy your bank accounts, repossess any automobiles you have that have equity and lien any other property that you may have in order to get paid on their judgment.

What is a Mortgage Debt Settlement?

A mortgage debt settlement is where you offer the lender a lump sum of money in order to settle the loan and in exchange the lender should consider that payment as full and final satisfaction for the debt and they will have no further recourse against you.  In other words the debt will be settled.  It is extremely important that you have an experienced mortgage debt settlement attorneys assistance in negotiating this settlement as there are a lot of complicated issues to navigate and then make sure they are properly documented in writing from the lender.

In addition your credit report should be updated with the current status of the loan so that it is no longer showing as a debt that is owed but will instead say something to the effect of “paid in full for less than full.”

This could be a taxable event depending on your financial situation and the current IRS exceptions that are available to use and that you qualify for.

Example;

Using the above example Chase would be the lender who would foreclose on the home and Green Tree would have a recourse loan.  It is critical to settle the debt immediately after the foreclosure if you either cannot qualify for bankruptcy or you want to avoid it and before they file a complaint.  This can happen very quickly, we have seen some lawsuits filed just a couple of months after the foreclosure.

We have helped many clients settle their junior liens after a foreclose and avoid bankruptcy.  Please contact our Sacramento mortgage debt settlement attorneys today for a free consultation to see how they can help you.

We are experienced California and Sacramento Real Estate Attorneys. We are a unique and powerful combination and can help you with your real estate legal issues.  We have helped thousands of people with pressing real estate issues find solutions and relief through the use of short sales, deed in lieu of foreclosures, strategic foreclosures, mortgage debt settlements and legal real estate review and advice.  

Our real estate attorneys have achieved proven results and can give you the great legal advice and strategy needed to get you the results you want. Contact us today to schedule your complimentary attorney consultation by clicking HERE or by calling 916-999-1376. We look forward to helping you with all of your Sacramento Mortgage Debt Settlement real estate needs.

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