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I recently got a new job and my wife will be getting a new this summer as well. However, these jobs will require us to move. We bought a house 2 1/2yrs ago for $126,000 and still owe $122,000 on it. Here's the bad part, we took out a second mortgage of $34,000 to pay off some debt and do some home improvements...still owe $30,000 on that. Total of $156,000 between the two mortgages. Our house should be able to sell anywhere from $130,000-140,000. So we will need to come up with $16,000-26,000 to pay the rest of the second mortgage off. Any ideas on how I can pay off that second mortgage? We don't have that much in savings to put towards it. My only thought was to put some of it on credit cards...but we still wouldn't be able to pay all of the second mortgage off. Also, I don't know if there is a way to convert our second mortgage into a normal loan(not attached to the house) that I can make payments on for 5yrs or so??? We have to move...so selling the house is a must, I just don't know the best way to get out of the mortgages? The second mortgage is the biggest problem..we will be able to pay the first one off. I'm hoping to pay the second one, somehow,with as little damage to my credit as possible.
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I recently got a new job and my wife will be getting a new this summer as well. However, these jobs will require us to move. We bought a house 2 1/2yrs ago for $126,000 and still owe $122,000 on it. Here's the bad part, we took out a second mortgage of $34,000 to pay off some debt and do some home improvements...still owe $30,000 on that. Total of $156,000 between the two mortgages. Our house should be able to sell anywhere from $130,000-140,000. So we will need to come up with $16,000-26,000 to pay the rest of the second mortgage off. Any ideas on how I can pay off that second mortgage?

Any chance of a moving or sign-on bonus from your new job(s)?

We don't have that much in savings to put towards it. My only thought was to put some of it on credit cards...but we still wouldn't be able to pay all of the second mortgage off. Also, I don't know if there is a way to convert our second mortgage into a normal loan(not attached to the house) that I can make payments on for 5yrs or so???

Only your lender can answer this. In place of converting it to an unsecured loan, you would have to do a 'short sale' where some of your debt is forgiven by your lender(s). By chance, are both your loans serviced by the same lender? If not, either of these options will likely be tougher to do.

We have to move...so selling the house is a must

Ummm, not necessarily.......being a long distance landlord can be a pain, but it could also be a way to resolve your issues. What's the rental market in your area like? How much underwater would you be each month?

I just don't know the best way to get out of the mortgages?

Any family you can borrow money from? Can your new employer give you an advance? Can you get your current 401(k) transferred over to your new employer immediately and take out a loan against it? Or if your current employer allows for payback of a 401(k) loan after you leave their employment, take one out now?

The second mortgage is the biggest problem..we will be able to pay the first one off. I'm hoping to pay the second one, somehow,with as little damage to my credit as possible.

If all you are counting on is the sale of the house to pay your first mortgage off, you may not even be able to do that...If your house sells for $130k and you have more than $8k (6.2%) in closing costs, you will have to come up with additional money to pay off even the first mortgage. And saying that 'my house should sell for $130k - $140k' at this point in time may actually mean that your house will only sell for $110k or $120k, as mortgage qualifications are much tougher now than they were when you bought the house.

You need to call your lender(s) and explain the situation to them, and see what they are able to offer you. Start with the lender on the 2nd, as they have more to lose. Ask for their "workout" group and tell them that you are going to have to sell your house in a short sale. If you have 2 separate lenders, you will need to encourage them to work together with you. You may not be able to save your credit rating, although your willingness to convert the debt to unsecured debt and continue paying should help.

AJ
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Hi AJA,

aj did a good job, but didn't quite cover this, whixh is a valid question (and may contain your best solution);

Also, I don't know if there is a way to convert our second mortgage into a normal loan(not attached to the house) that I can make payments on for 5yrs or so???

The answer is; Virtually definitely... the lender on the 2nd will release the collateral lien on a short-sale (when the sales proceeds are insuficient to cover the loan balances) and re-write the remaining balance as an unsecured debt for you.

When you think about it... you had previously converted unsecured debt into collateralized debt, and converted future income also into collateralized debt (for the renovations)... and at this point you would merely be re-converting that back into unsecured debt (quite realistically at higher unsecured interest rates again,) and carrying it and paying it down against the future income you pre-consumed on the renovation expenditures.

It all balances out & all makes sense.

Call the 800# customer service number on your 2nd loan bill, and ask for the 'workout' department. Explain the whole thing, with the emphasis that you're not dodging anything...just need to work out how you're going to transfer the debts since the property values have declined and you are forced to move due to employment. Yours wont' be the 1st they've dealt with like this in the current environment, and your proactive call will have them be far more amenable to working things out.

Done in advance, there SHOULD be no negatives to your credit at all.

Good luck!
Dave Donhoff
Strategic Equity & Leverage Planner
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Well, I called the 800 number a couple of times and spoke to two different people who didn't seem to know what I meant. In fact, one of them gave me another 800 number to call, but I'll have to wait until Monday to do that.

So here is another question I was curious about. When I sell my house, assuming I pay off my 1st mortgage and only have my 2nd mortgage left. What is that mortgage attached to? Will the "new owners" of my house that I just sold have the house free&clear? Or will my 2nd mortgage lender still have a lein on that house? The person I spoke with today said that I could still make my normal mortgage payments even after I sold the house. But I didn't think you could since, technically, they gave me a loan backed by a house that I would no longer own. I hope I asked this question clearly.
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Hi AJA,

So here is another question I was curious about. When I sell my house, assuming I pay off my 1st mortgage and only have my 2nd mortgage left. What is that mortgage attached to?

Nuttin dear. It will be an unsecured personal loan in your name.

Will the "new owners" of my house that I just sold have the house free&clear?

If they pay in cash, yes.

Or will my 2nd mortgage lender still have a lein on that house?

Not if the new buyers get title insurance, they won't. The insuring title company will require the old 2nd lien holder release their lien in favor of the new owner (and/or the new owner's financing lienholders.)


The person I spoke with today said that I could still make my normal mortgage payments even after I sold the house. But I didn't think you could since, technically, they gave me a loan backed by a house that I would no longer own. I hope I asked this question clearly.

Sure... if the 2nd lienholder will allow the release of lien, and the continuation of the terms of your loan on an unsecured basis, you are good to go.

Whenever talking to your lenders, just say "I need to talk to the whort-sale department please." They've move you right along.

Luck!
Dave Donhoff
Strategic Equity & Leverage Planner
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So here is another question I was curious about. When I sell my house, assuming I pay off my 1st mortgage and only have my 2nd mortgage left. What is that mortgage attached to?

You can't just not satisfy the 2nd mortgage. If the lender does not release you from the mortgage obligation, you don't have a clear title and you can't sell the house.

You have to make some kind of a deal with the 2nd mortgage lender, either to convert the 2nd mortgage to an unsecured loan, or to do a short sale and get the 2nd mortgage forgiven.

Will the "new owners" of my house that I just sold have the house free&clear?

If you don't supply a clear title, with no mortgage obligations, there won't be any 'new owners'. However, unless the new owners have cash to buy your house, they would presumably have their own mortgage obligation, so they wouldn't own the house 'free & clear'.

Or will my 2nd mortgage lender still have a lein on that house? The person I spoke with today said that I could still make my normal mortgage payments even after I sold the house. But I didn't think you could since, technically, they gave me a loan backed by a house that I would no longer own.

If the 2nd mortgage lender is willing to convert the 2nd mortgage to an unsecured loan and let you continue making payments, you could do that. Just remember, since the loan will no longer by secured by real estate, you will lose the interest deduction.


AJ
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Thank you David and AJ,

I will be calling my 2nd mortgage lender on Monday to see if they are willing to convert it to an unsecured loan. The 2nd loan is with DiTech, either of you happen to be familiar with them and their policies? I'm hoping they will convert it, I have no problem paying under my current terms...so hopefully they can switch it.
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If the 2nd mortgage lender is willing to convert the 2nd mortgage to an unsecured loan and let you continue making payments, you could do that.

AJ:

Isn't it likely that, as the 2nd mortgage lender is releasing its lien on the property, they will likely want to increase the interest rate on the now unsecured loan?

Christina
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Isn't it likely that, as the 2nd mortgage lender is releasing its lien on the property, they will likely want to increase the interest rate on the now unsecured loan?

It depends. Assuming that they have securitized the loan and sold it to investors, generally all the lender needs to do is continue to pay the investors at the rate stated on the original note. If they do increase the rate, the lender will stand to gain the additional interest. However, if they increase the rate and/or payment too much, they run risk of having the OP default on the loan. So it's a balancing act, and at this point in the game, with the mess that the mortgage industry is in, I would guess that the lender would be happy if the OP just continues to pay on the original terms, rather than trying to eke a little extra profit out of the loan.

AJ
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Hi Andrew,

The 2nd loan is with DiTech, either of you happen to be familiar with them and their policies?

DiTech is the retail branch of GMAC Finance (yup.. General Motors...

I have had success recently in getting GMAC to agree to note modifications for our clients with ARMs about to go adjustible in declining markets... which would suggest they'll also be flexible in keeping an existing performing note in place despite releasing the lien on the underlying collateral as well.

GMAC is a big player... their servicing department is usually fairly responsive & user friendly.

Luck!
Dave Donhoff
Strategic Equity & Leverage Planner
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Well, it only took me talking to five different people today to finally get them to say they basically couldn't help me out. DiTech said they don't do any unsecured loans, so that option was out. They also said they couldn't release the lien and let me continue payments at my existing terms. The only option they gave me was a short sell. I'll have to start working on Plan B now. Thanks for your help AJ and David! Have a good weekend.
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DiTech said they don't do any unsecured loans, so that option was out. They also said they couldn't release the lien and let me continue payments at my existing terms. The only option they gave me was a short sell. I'll have to start working on Plan B now.

So at this point, your options to get rid of the house are: short sale, deed in lieu of foreclosure, foreclosure or finding the money from somewhere else to pay off the shortage at closing.

Short sale: Since you have 2 different mortgage holders, you will need to negotiate with DiTech and the first mortgage holder to get both liens released, even if you won't be able to come up with enough money to pay off the entire owed balance. Since, with the figures you came up with, DiTech will get little or nothing, and it doesn't appear as though they will be willing to negotiate an unsecured repayment plan, this is probably going to be a difficult negotiation. Not necessarily impossible, but difficult. And your buyers will need to have patience. And depending on how the negotiations go, this option is likely to cause damage to your credit, as whoever doesn't get paid is likely to report that loan as being unsatisfied.

Deed in lieu of foreclosure: Again, because of the 2 lien holders, is likely to be difficult to negotiate, but could be done. Will be slightly less damaging to your credit than a foreclosure.

Foreclosure: In some ways, the easiest solution - don't bother trying to sell, stop paying your loans, and get on with your life. However, it definitely will damage your credit.

Find money elsewhere to pay off the shortage: Likely the most expensive option, as you are unlikely to get an unsecured loan for a lower rate than your current secured second, unless you have a relative who is able to help you out. But this will be the least damaging to your credit, assuming you are able to pay back the unsecured loan. Options to look into - retirement plan loan from your current employer (only if they will allow payback with the original terms even after leaving employment), retirement plan loan from your future employer (would require immediate rollover of current assets to new plan, and taking out a loan prior to closing on the sale of the house), credit cards (good balance transfer offers are becoming more expensive and harder to come by, so this may end up being expensive), loan from your bank or credit union (if you have cars that are paid off/down and you can refinance them, this might be less expensive), friends and/or relatives who are willing and able to help you out.

If you are willing to keep the house and become a long-distance landlord, you can wait until your loan balances are paid down enough, and/or the property increases in value enough so that you can sell at breakeven. You may get some current benefit on your taxes from depreciation (be aware you will have to pay capital gains taxes on the amount that you depreciate when you eventually sell) and it still may be a cash flow drain, as you may not be able to get enough rent to pay both mortgages and a property manager. Plus you will have to deal with landlord issues. But if you want to save your credit rating and you can't find the money elsewhere to pay the shortage, this may be your best option.

AJ
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Thank you for the reply AJ. It looks like I will have to try the following options in this order. First, try to find the money elsewhere(I don't think it can get much more expensive than what DiTech charges 14.5%...I've got a good credit score). Second, Short Sale. Third, Deed in lieu of foreclosure. Last Foreclosure.

I've thought about the landlord thing, but it won't work out for me.

Enjoy the weekend,
Andrew
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