Getting Over Second Mortgage Blues
Difficult times call for difficult decisions. As some one said, Tough times don't last, tough men do. It does not seem like a long time back when you opted for the second mortgage or home equity loan or home equity line of credit to pay for college or perhaps for home repairs.
Yet, you may find yourself already going through a crunch and may be finding it increasingly difficult to make your mortgage payments. You are not alone; more so, if you have two (or more) mortgages on your home.
Typical mortgage questions can be: If I dont have enough to pay FOR both my mortgage payments fully, which one should I pay first? Should I pay one fully rather than make part-payments on both? How should I split my payment?
For a precise answer to these questions, it might be a good idea for you to contact your lawyer but lets have a different angle here.
Before you start, it might be a good idea to take stock of your situation. How bad is it really? Are you not able to meet your personal expenses anymore? Are you sure you cannot cut down on any of your discretionary expenses anymore? You may like to take note that a discretionary expense is defined as an expenditure that is either completely avoidable or is more expensive than necessary. Examples include going to the movies and gourmet meals.
Of course, where you draw the line for unnecessary expenses depends entirely on you. One could argue that a soda is avoidable if you can go to the water hole and yet find it difficult to say no if your partner wants you to pay for the movies!
The bottom line is that both your first mortgage holder as well as your second mortgage holder can cause you immense anguish and damage, if you fail to make the scheduled payments.
If you keep the first mortgage happy by paying off fully, the second can initiate a foreclosure. And this may lead to the first following suit. So, there may not be much to choose between the two from a legal perspective. However, given the current property prices, second mortgage holders may be less aggressive and therefore more tolerant than first mortgage holders.
A good suggestion in such a situation would be to go to your second mortgage institution and have a frank discussion. Many bankers may have a lot of discretion within set parameters and if you have a convincing story, s/he may give you some practical and doable options within their discretion; or even go out on a limb to recommend an exception to their superior.
Of course all this depends much on the particular situation of the lender as well as your personal equation with them. This means the lender has to see you as someone trustworthy and in a genuine problem situation. This may be difficult to achieve unless you know your lender personally. In a more typical situation, you can only expect a professional treatment.
The problem is that if you go in too early, your case may not be convincing and the lender may only quote the rule-book to you. An arguably better way especially if you are working with local / community lenders -- is to first try your level best to actually make both mortgage payments and demonstrably cut-down on some of your expenses. You may then approach your second mortgage lender to explain your situation and seek a Loan Workout Plan or a Forbearance Plan.
A workout plan may allow you to come back to the normal situation in an agreed time. This may include a "temporary indulgence" if the default is caused by a temporary condition (say 60 days) or a "repayment plan" if you can demonstrate that your situation is temporary and you expect to return to the previous levels in a reasonable period. Of course, any such plan may typically require that you will end the delinquency in no more than 12 to 24 months.
A Forbearance Plan may work if you have a good record with the lender. Such a plan is designed to allow borrowers to get over financially difficult situations by either suspending payments for a short time or by allowing them to make reduced payments for some time. Normally such a plan will not exceed 18 months.
Possibly all the options and alternatives discussed above may be tough on you. But you may draw solace from the fact that the banks too are hurting. If the folks who take loans do not repay, how are they going to repay those who have made deposits with them? In the light of this understanding, you may be more likely to go to your bank with a practical mind set and negotiate a win-win deal that does not hurt either party too much.
by: Ask Bill
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