In the last year and a half second mortgages have been a topic of concern where many people need answers.  In many cases what’s happened to people with 2^nd mortgages their house has lost value due to the economy.  Their first mortgage value is fairly high and the 2nd mortgage value has eclipsed the total value of the home.  In financial terms they are considered “underwater”.  Essentially you owe more than what your home is worth.  A good example would be a first mortgage of 100,000 dollars on a house that’s worth 150,000 dollars, with a second of 75,000 dollars.  So they owe 175,000 and the house is worth less than that and you are officially underwater.

 So what do you do if you are in the position described above?  Are you considering defaulting, or have defaulted already?

 There are five steps you need to do: evaluate, take action, recognize your lender’s situation strength or weakness, meet with your lender, and obtain a suitable option if there is any.

1. You need to decide what you can do about it.  Hopefully you haven’t defaulted yet or just given up.  You need to realize where your lender stands.  We’ll explain further about this shortly.
2. Now you need to find out what your lender is doing about your situation if you have begun the default.  You need to meet with your lender, but figure out number four below first.
3. Figuring out your options, this is so important.  What you need to recognize is where you stand in regards to how much incentive to foreclose your lender has over you?  This is incentive strength or weakness.

For example let’s take the scenario above.  Your home has a 175,000 dollars owing on it and you have a second mortgage of 50,000.  Your lender will have a higher degree of incentive to foreclose on you because your house can be sold and pay off a good portion of the amount owing.

Now let’s look at another scenario.  Let’s say your house is worth 150,000, and you have a first mortgage of 150,000 and a second one of 50,000 dollars.  Your lender will have very little incentive to foreclose in this situation because they will get nothing as they stand second in line for proceeds from the sale.  They will likely incur even more legal fees to foreclose. It’s a no win for them and they will be more open to suggestions from you in reducing payments at least for the short term.

Meet with your lender and call a spade a spade.  Tell them you’re underwater and state to them the present payments are crushing you.  Point blank ask what can be done to work this out?  In some cases the lender may stand firm and not want to help, in which case we have a government website for you to visit that you may get help from.  In many cases your lender will ask what level of payment you can handle for the time being, to get by and back on your feet, given the present economic environment.  It really does boil down to the amount of incentive your lender has in deciding what they will do.  If you have a lender with a higher incentive you will have to explain step one and have a plan to sell on how you will rectify the situation.  You need to make a sound case to them explaining that you need your payments dramatically reduced for the short term as you work out your plan.

If you’ve been making your payments up to this point you are a creditable borrower, the lender will look more favourably on you.

If you’ve missed some payments and your lender has incentive to foreclose you may have to exercise other options such as a short sale or a deal in lieu of foreclosure. 

The bottom line is make sure you know where you stand and meet with your lender before you default if possible so you know your options.  Don’t let money problems fester or they will do just that and it will be an all around worst situation.

If you can’t find resolution with your lender then go to the following website www.hopenow.com which is a website put up by the government of housing and urban development.  This website is for people in just that situation.