Settling Mortgage Debt After Bankruptcy
If you recently filed a Chapter 7 Bankruptcy, and you had a home with a second mortgage on it, you may have something to negotiate. Under bankruptcy law, a very weird thing happens to your mortgages during bankruptcy.
The promissory note, which is your obligation to pay the loan back, is wiped out. But the mortgage itself, which is the lien or security on your property, is not wiped out. So you find yourself in the odd situation of technically not being obligated to repay your mortgage, but facing foreclosure if you don’t.
Second Mortgage Debt Settlement After Chapter 7 Bankruptcy
Where there is adversity, there is opportunity. If you have a second mortgage, like a HELOC or similar loan on your property, and there is no equity beyond the first mortgage, we may be able to negotiate a release of the second mortgage for a significantly reduced settlement amount. Here is an example:
1st Mortgage = $200,000
2nd Mortgage = $75,000
Home Value = $200,000
In this scenario, we may be able to negotiate a full settlement and release of the second mortgage for a fraction of the balance. Why? Because the second mortgage is essentially unsecured. That is, there is no equity to protect their position, since they are subordinate to the 1st mortgage. If you were to let the home go to foreclosure, they may get nothing.
But You Must Act Quickly
If you have a scenario similar to the example above, you must act quickly. Why? Because Arizona real estate values are rising and lenders know it. If your property continues to appreciate in value over the next year or two, there may suddenly be equity to secure the second mortgage and the chances of a favorable settlement could go away.
Arizona Mortgage Debt Settlement Attorney
Our mortgage debt settlement attorney understands mortgage law, real estate law, and bankruptcy law and can help navigate a strategic solution for you. If you think you may have mortgage debt to settle after a bankruptcy, call today for a free consultation. It’s important to at least find out your options.