Negative Home Equity: Remove 2nd Mortgage or Home Equity Loan
In this troubled economy, home values have suffered. For many homeowners, between their first and second mortgages, they owe more money on their home than what it is currently worth, or have “negative equity .”
If this is the case for you, and you have a second mortgage or home equity loan, we can explore removing that second mortgage or home equity loan. Call us today at 866-261-8282 for a free consultation with one of our licensed attorneys to discuss your options to:
- + Remove a secondary mortgage
- + Reduce your total mortgage balance
- + Re-balance your home’s value relative to current market conditions.
We offer both phone consultations and in-office meetings at any of our six Michigan offices in: Detroit, Ann Arbor, Dearborn, Southfield, Flint or Warren.
Legally Removing a Second Mortgage or Home Equity Loan
Here is how it works. Under a Chapter 13 Reorganization, if your home is only worth what you owe on your first mortgage, the second mortgage is no longer considered to be a “secured” obligation and can be removed. Through our Chapter 13 program, we will basically convert the second mortgage, home equity loan or other lien to an unsecured debt. This process is called “Lien Stripping ” and has many benefits:
- This will create a lower payment going towards your monthly mortgage obligations.
- Under the terms of the Chapter 13 reorganization we can most often eliminate a portion, if not the majority, of your unsecured debts, including the stripped lien. You are simply required to pay your “best efforts” over the course of the program (3 -5 years).
- Any money paid toward the “stripped lien” would be paid at 0% interest and oftentimes paid at pennies on the dollar; along with any other unsecured debts you may have (i.e. credit cards, medical bills, personal loans, etc.)
- If you are behind on your primary mortgage or a vehicle, and they are being paid through the Chapter 13 Reorganization, all payments to your unsecured creditors (including the stripped lien) are deferred until you are caught up on the mortgage or vehicle.
At the successful completion of the reorganization program, documents are filed with the register of deeds to legally remove the secondary loans or liens from your property and any unpaid balances are eliminated or discharged. Similarly, any unpaid balances on other unsecured debts (credit cards, medical bills, etc.) are eliminated as well.
Other Mortgage Reduction Tactics:
In addition to reducing your total mortgage debt by removing your second mortgage or home equity loan, the Chapter 13 plan provides other avenues to reduce your mortgage debt:
- Loan Modification: You may have tried to achieve a loan modification already. For most people, the process of working with the bank is long and frustrating. Let us take it over!
- By pursuing a loan modification through the Chapter 13 plan, you are guaranteed under HAMP guidelines that the mortgage company must consider your modification.
- By removing your second mortgage or home equity loan and other unsecured debts, you may be in a better qualifying situation to receive a loan modification due to a reduced debt-to-income ratio.
- Escrow Acceleration: We can resolve a mortgage escrow acceleration by taking the escrow shortage and spreading it over the length of the 36 – 60 month plan at 0% interest vs. the typical 6 – 12 months that the mortgage company sets up.
- 0% interest repayment on any mortgage arrearages if you have gotten behind on payments. Again, these arrearages are spread out over the life of the plan at 0% interest.
- If you have a rental property(s), the program offers the unique opportunity to reduce the principal mortgage balance to current market value. Using your tenant’s rent payments, you can own the property(s) free and clear in 3 – 5 years.
Other Chapter 13 Benefits and Protections:
Besides reducing your mortgage balance and restoring your home value, the Chapter 13 plan has many advantages:
- Prioritize and Balance Your Budget: The Chapter 13 has a hierarchy for your creditors. The plan prioritizes your secured creditors (1st mortgage, vehicle payments) and monthly living expenses first. Only after these bills have been accounted for do we consider what funds are available to pay your unsecured creditors, such as credit cards, medical bills and the “stripped” second mortgage or home equity loan.
You have the peace of mind that the most important things are being paid and addressed first. The Chapter 13 creates a balanced budget and protects you from late reports to the credit agencies.
- Consolidate and Reduce Your Debt: The Chapter 13 is a comprehensive debt consolidation program that allows you to defer payments to unsecured creditors.
When we sit down and develop a customized budget with you, we determine how much, if any, discretionary income you have to pay back your other unsecured debts. You are only required to commit your “best efforts” over the course of the program (3-5 years) and the rest is legally eliminated or discharged. You no longer have to pay those debts and your credit will be improved.
There are unique debt reduction elements to the Chapter 13 plan, such as reducing the interest rate on your vehicle or possibly reducing the principal balance of what you owe to the current fair market value, depending on how long you have been financing the vehicle.
- Improve your credit. Credit has two main facets that influence 65% of your credit score according to FICO. Here is an how the Chapter 13 works to address and improve both areas:
- Debt-to-income-ratio: Because the Chapter 13 plan is focused on paying down and reducing principal debt, your debt-to-income ratio will improve as you advance through the program.
- Under the Chapter 13 program you no longer pay interest or service fees on unsecured debts. Straight principal payments go to all unsecured creditors such as credit cards and medical bills, “stripped” second mortgage and any mortgage arrearages. Therefore, each month, as the principal balances decrease, your debt-to-income ratio will improve.
- All remaining debt balances on unsecured debt obligations are legally eliminated with a court discharge at the completion of the program.
- Timely, consistent payments to your creditors. Since the program provides a structured repayment plan, debts are paid back in a timely consistent manner by a court-appointed trustee. This creates a steady payment history and again, works to improve your credit. You are protected from negative or late reports to the credit agencies.
Therefore the reorganization plan addresses and improves both major facets of your credit.
- Security of Court Protection. While you are in the re-payment plan you will have the security of court protection from creditor actions such as:
- Home foreclosure
- Vehicle repossession
- Creditor calls and collection efforts
- Garnishments, etc.
Reduce Debt, Simplify Your life.
The plan is tailored to your individual situation and budget. From the outset we will perform a detailed accounting of your debts and monthly income. We create a consolidated monthly payment that takes the frustration and guesswork out of bill paying. You no longer need to worry if your bills are being paid on time or if you are forgetting to pay one.
At the end of the program, you are left with a mortgage debt that is in line with your home value, freedom from unsecured debts and improved credit! Call today at 866-261-8282 for a free consultation with one of our qualified Chapter 13 attorneys about your options for mortgage and debt reduction.
We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in Detroit, Southfield, Dearborn, Flint, Ann Arbor and Warren, Michigan. Please call us toll free at 866-261-8282 or click here to schedule a consultation right now.