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Trouble with 2 Lenders
My wife and I bought our house with an 80/20 mortgage. After losing my job we’re using savings to make payments, but we will soon reach the point where we can no longer cover the mortgage. If we make payments to only one lender, what actions can the other lender take?
When you purchased the home you bought with no money down. Let’s say the sale price was $300,000. You got one loan for $240,000 (80 percent) and a simultaneous second loan for $60,000 (20 percent). You were (hopefully) qualified on the basis of two incomes, and now there is one.
The first step now is to contact your mortgage servicer and ask if you can get modification help such as an interest-rate reduction, a loan extension or a combination of the two.
Next, in this scenario you have a loss of income, but have been making payments. If you have some household income you should look into the government’s Home Affordable Modification Program. If you meet the program’s standards and have sufficient income to make the new and lower payments you may be able to get a loan modification.
If that doesn’t work then contact your state attorney general. That office may be able to direct you to a state-based assistance program.
You want to make payments to both lenders to preserve your credit and thus present the best picture for a modification. If you stop payments then either lender has the option to foreclose.
If there is a foreclosure, then every penny from the foreclosure sale must go to the first lien holder. Only after the first lien holder has been completely paid off can the second lien holder get any money. Because of the way foreclosure money is paid out the second lien holder may not want to foreclose and have a huge loss on its books, but you can’t count on such inaction.
If there is no new job ahead then you have to consider your options. One choice is to list the home with a local real estate broker and have it sold. If you can sell for enough to pay off the lender, and if you have been making your payments, then it’s simply a home sale, and that’s the end of it.
However, if the property is worth less than the existing mortgage balance you may need a short sale, a transaction that requires lender approval because you’re asking the lender to accept a loss.
If the lender is facing a loss it may want to sue for a deficiency judgment to get back its money, but can it sue? Speak with an attorney or legal clinic to determine if a deficiency claim is allowed in your situation.
Because a short sale can drag on for months, you might want to consider an auction as an alternative. In any case, before going further speak with an attorney or legal clinic as well as a tax professional to understand your rights and options.
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Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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