Depending on your financial situation, making monthly payments on a second mortgage can be stressful. There are several ways to relieve some of your debt and free up some cash. If your second mortgage debt is an issue, your options include to:
- Pay more than the required monthly payment, especially if it has a higher interest rate than your first mortgage (or it has a variable interest rate), and apply any extra income towards paying off your second mortgage.
- Take out a refinance loan. It can be used to consolidate both mortgages, so you end up paying off a single loan, possibly with a lower interest rate and reduced monthly payments. This option works if you have enough equity in your home.
- Examine your monthly income, calculate your expenses, and compare the two. If you are struggling with your finances, contact your lender. It might be possible to negotiate a settlement, have a portion of your debt forgiven, or qualify for a loan modification.
A second mortgage is based on property value. It will no longer be secured by equity if your home has decreased in value or you have defaulted on your primary mortgage.
How to Get Out of My Second Mortgage
Filing for bankruptcy can eliminate your second mortgage debt. If an appraiser determines the value of your home is less than your first mortgage, or is upside down, Chapter 13 lien stripping may be possible. The bankruptcy court essentially converts your second mortgage into an unsecured debt. When it does, the lender removes its lien from your property. This process only works with junior liens, like those associated with second and third mortgages.
However, the second mortgage lien cannot be stripped through bankruptcy if it’s partially secured by equity, and the value of your home exceeds the balance you owe on the first mortgage.
Stripping a second mortgage with a Chapter 13 bankruptcy requires a court proceeding. The lender may object to stripping your second lien. If so, a hearing will be set by the bankruptcy court, in which the debtor and their creditor can present relevant evidence. The evidence presented may include the fair market value of your home, and that it lacks equity. If the balance of your first mortgage and value of your home are only slightly different, a second appraisal may be ordered.
Lien stripping usually requires a special motion by the court. The typical scenario is not to strip the lien until the bankruptcy is discharged, but as to when a second mortgage is stripped from your home, the courts don’t always agree.
When a second mortgage is stripped, it becomes a form of unsecured debt. Typically, you’ll pay a small portion of it once a Chapter 13 plan is created. Payments outside the bankruptcy are generally not required. Any amount left over after the plan is completed is discharged.
Assuming your case isn’t dismissed before the bankruptcy plan is completed, or there aren’t any other issues, you won’t need to pay your second mortgage.
Consult with OakTree Law for Second Mortgage Help
OakTree Law specializes in bankruptcy and debt services. Our Los Angeles debt attorney can assess your financial situation and explain suitable options to help you make the best possible decisions. We can help eliminate second mortgage debt in various ways, including filing for bankruptcy, which can avoid foreclosure and repossession. To learn more and speak to a Los Angeles or Orange County debt attorney, request a free evaluation online or call 562-219-2979.