How to Negotiate a Settlement With a Second Mortgage After Foreclosure

If you find yourself in the position of being unable to make your monthly mortgage and second mortgage notes, you understand the associated stress. It may be that your first mortgage is in foreclosure, but you're still expected to make second mortgage payments. It may be that you've been unable to pay either mortgages for months, but have yet to receive a notice of foreclosure. Whatever your situation, Florida attorney Jonathan B. Alper, P.L.C. says that there has been an increase in second mortgage lawsuits since 2009. Second mortgage lenders are coming after loan holders who are not making their payments, even if their homes are in the midst of foreclosure. There are steps you should take in order to negotiate a settlement on your second mortgage.

Instructions

Send a letter. Write a letter to your lender explaining your situation and why you're having trouble making payments. Reasons may include job loss, serious illness, divorce and other life-changing circumstances. If your house is worth significantly less than you owe on it, let your second mortgage holder know. Tell him if the first mortgage is already in foreclosure. Let him know that you would like to honor your agreement but are unable to do so. Propose a settlement offer. Send the letter certified mail with return receipt requested so that you can prove that your lender received it.

Make a phone call. If you have an especially compelling case, such as a serious illness, wait a week or so after you've sent the letter and call your lender directly. Ask to speak with someone who might be able to help you come up with a settlement. The danger of calling lies in the fact that collection agents are hired to do one thing: collect the money you owe. However, do not give any personal information to the lender, such as where you work or any of your bank account numbers. Purchase a pre-paid cell phone especially for these settlement calls so that the lender is unsure of your current phone number. Be polite, state your case, and ask for anything they promise in writing. Your lender is likely recording your call, so don't say anything that you don't want played back in a lawsuit later, such as, "I might be able to borrow the money from family." If you have any doubts at all about what you might say, communicate in writing only.

Make an opening offer. Even after a home foreclosure, the second mortgage obligation remains. Therefore, your mission is to settle the loan for an amount you can afford to pay, just to get out from under the debt. Start low. For example, if you owe $30,000 on your second mortgage, offer to pay the lender somewhere between $3,000 and $5,000 to settle the matter. They will likely tell you that they can't go that low. Be patient as you correspond with them in order to settle on an amount on which you can agree. It's likely that you don't have the money to make a lump sum payment, so ask for a payment schedule. They may give you up to 12 to 36 months to pay the settlement amount. If they are especially resistant to settling, remind them that your option is to file for bankruptcy, in which case they will get nothing on the loan.

Create a budget that allows you to see your bottom line. Only after creating a budget based upon your current circumstances can you decide how much you can afford to repay your second mortgage lender. Have that budget ready before you agree to any settlement. Don't make any payments on the settlement amount until you have a copy of their written agreement to settle in full.

Pay taxes on forgiven debt, if required. The lender will likely report the amount of your loan that has been forgiven as bad debt to the Internal Revenue Service. The lender will send you a Form 1099-C, stating the forgiven amount. You are to include this amount with your annual tax return. Whether or not you have to pay taxes on it depends upon whether you can pass the IRS insolvency test regarding forgiven debt.

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