If you’re reading this, you likely were just going about your life when you suddenly received communication from an old 2nd mortgage lender telling you that you’re in default and facing foreclosure.
The story usually goes like this:
- At some point in the past, you had a 1st and 2nd mortgage on your house
- You filed bankruptcy (back then) and may have been told that the “2nd mortgage is gone” as part of the bankruptcy
- Your bankruptcy came and went, you moved on, and have been paying your 1st mortgage
- You did not hear anything nor receive anything from your 2nd mortgage lender for several months
- Then, you get a letter from your 2nd mortgage lender (or a new servicer who is now handling your 2nd) telling you that you’re in default and potentially facing foreclosure
You’re likely wondering:
Can they foreclosure on me after my bankruptcy?
The most likely answer to this question is:
Yes. Your personal obligation to pay the debt was likely removed through your bankruptcy but the lien on title giving the creditor an interest in your home may not have been removed because it is a secured debt.
This concept is a little bit difficult to understand and it’s also something that bankruptcy attorneys sometimes fail to fully explain to homeowners.
Briefly, here is what you need to know:
- When you filed your bankruptcy, if it was successfully discharged, you may not have had any personal obligation to pay the debt anymore – which means the 2nd mortgage lender cannot force you to make mortgage payments.
- Even if you have no personal obligation to make mortgage payments, the creditor may still have a LIEN or an INTEREST in your home.
- If the 2nd mortgage holder’s lien was NOT removed as part of the Bankruptcy, your 2nd mortgage holder may still be allowed to foreclose on their lien.
So, if you suddenly start receiving a notice of intent to foreclose from your 2nd mortgage lender, it may be valid – meaning – they may have a legal right to move forward with foreclosure.
One of the things you’re probably wondering is:
Why did it take so long for the 2nd mortgage lender to contact me? Why didn’t I hear anything from them for so long?
The most likely answer to this question relates to the value of your home.
When you filed your bankruptcy, your home may not have been worth much.
Most likely, your home was worth less than the balances owed on your 1st and 2nd mortgage.
Since a 2nd mortgage lender is paid AFTER the 1st mortgage lender in a foreclosure auction, it may not have been worth it for the 2nd to foreclose on you because there likely wasn’t enough money in the home to pay off the 1st and get them some money.
Now, your home’s value has likely risen – meaning – there is more money in the home than there was before.
The 2nd mortgage lender understands that if they foreclose on their lien and the home is sold at a foreclosure auction, there is enough money in your property to pay the 1st mortgage holder in full and the 2nd mortgage in full.
Basically, the 2nd sees an opportunity to get money.
Since they cannot compel you to pay your mortgage payments because of the terms of your bankruptcy, foreclosure may be the only way for them to recoup money and – as we all know – lenders are ruthless creditors that are always looking for ways to get money.
2 things you should do as soon as you receive communication from a 2nd mortgage lender following your bankruptcy
- See if you are protected by any state laws or statute of limitations and be careful not to “acknowledge” the debt until you speak to an attorney.
- Some states have laws limiting the time frame that a 2nd mortgage lender has to foreclose on you following a bankruptcy. If you receive communication from a 2nd, your first step should be to speak to an attorney as soon as possible before responding to the lender or communicating with them.
- In the event you are in a state that has statute of limitation laws to protect you, be careful that you don’t engage with your 2nd until you’ve consulted with an attorney. Some laws say that if you acknowledge your debt in a particular way, the statute of limitations time-frame starts over.
- See if there are loss mitigation options to help you save your home and just resume making monthly payments.
- If the foreclosure action is legal, you need to figure out what options are available to you to save your home.
- Just because the mortgage lender is a 2nd mortgage lender doesn’t mean that things like loan modifications, repayment plans, and other loss mitigation options are not available to you.
- You may need to enter into a negotiation with the lender in order to stop the foreclosure action.
- It may be in your interest to have a mortgage relief analysis as soon as you receive communication from them.
It can be stressful to receive communication out of nowhere from a lender you thought went away. If you’re in Washington State facing an issue with a 2nd mortgage lender and want to chat about your situation, feel free to give me a call at (425) 654-1674.