Bankrupt homeowners shed second mortgages

by on May 23, 2011

OK. Before we really dive in to what this means to you if you are having issues with your mortgage I want to HIGHLY recommend that you seek out the services of a professional bankruptcy attorney.

Because everyone’s specific situation is different it is vital that you do this.

With that said, there are a growing number of people who are using existing bankruptcy law, with the help of a professional attorney, to save their home.

Here are some interesting points:

  • Bankruptcy laws prevent homeowners from eliminating the debt of a first mortgage if they plan to stay in their home.  But second mortgages are treated differently.  Second mortgages can be declared unsecured debt when there is no equity to cover them.
  • When that happens in a personal bankruptcy proceeding, the second mortgage is put on hold and no payments are required while the homeowner completes a repayment plan for other debts, which typically takes three to five years.  At that point, the second mortgage is eliminated.
  • While this strategy has gained in popularity among homeowners, mortgage bankers are not in favor of the practice, and have called it “a troubling phenomenon.”  However, there is little the mortgage industry can do, aside from seeking to change the law, which could be difficult given the current partisan lineup in Washington.

I spoke with an attorney and there are some very specific things you need to know to see if you qualify for this program. It is definitely not for everyone.

If you are underwater with your mortgage, having trouble making the payments or need the name of a good attorney, please call me. I will see what I can do to point you in the right direction.

Good Luck!

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