Question: We were facing foreclosure and we filed for Chapter 7 Bankruptcy, which was discharged earlier this year. At that time, we owed about half of our total mortgage debt on the first mortgage and half on the second and both mortgages were with the same bank. The value of the home at that time was listed in the bankruptcy at about as much as our first mortgage was worth and most of the second mortgage was unsecured. Presently we owe slightly more on our first mortgage than at the time of bankruptcy (we are current with our payments but with interest it has gone up since the bankruptcy) and have not been able to pay the second mortgage for three years now. I got a personal injury lawsuit settlement recently and we would like to approach the bank that holds the second mortgage with a settlement lump sum amount. I believe we had to reaffirm the first but if we approach the second and they do not go for a lump sum, will they be able to come after us for the payments like they did before the bankruptcy? Will we have to reaffirm the second and what exactly does that mean? How do we best go about approaching the bank?
Response: You should contact the attorney who filed bankruptcy for you and find out if bankruptcy already wiped out the second mortgage, or at least the unsecured portion of it. In any case, lenders in second position entertain settlement offers with much more enthusiasm than one would think since the main concern is to receive something than be wiped out completely. In your case, if you are still obligated under the second, you should definitely negotiate into a lump sum payment and there is a high probability that the bank will accept a lump sum (usually in proportion to the fair market value of the home minus first mortgage is what's left for second to recover). Otherwise, find out if there is a possibility of a loan modification--that could be another way out or you will be back at square one where you were before you filed for bankruptcy.
In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.
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