2nd Mortgage Question

A BK Discharge wipes out the debt, but not the underlying security interest. (In other words they cannot try to collect money from you, but they can act to enforce their security interest by repossessing the collateral, for example).

NOW in your case they are a second-position lienholder. They are only secured in the property to the extent that there is any surplus left after the primary mortgage is satisfied. So your primary will sell the house (or apply proceeds from the sale to your balance). If there's anything left over, it will be turned over to the second mortgage. If there's nothing left over, then the second mortgage gets nothing.

They cannot legally sell your account or try to get any more money from you. That is a risk they took in allowing themselves to be a second-position behind the first.

Ok...so once they get a portion of their money or none at all then they release the lein and we are all done? They can't try to collect on any additional amount that they didn't receive? Well, that is good.

I've been trying to get them to modify the 2nd so we can stay in the house longer. I haven't paid in about 5 months, but I can't get anyone to really talk to me. I filled out all the paperwork and they gave me a name of a person to call, but every time I leave a message, they don't return my call. Can they foreclose if the 1st mortgage is current?

First let me disclaim a little and say that this is just my understanding, and based on my experience in the auto industry. Real estate transactions are obviously a lot more complicated than car deals, and I am by no means an attorney.

Assuming that you did not reaffirm the debt in your BK, then they cannot try to collect any amounts (or otherwise demand payment) from you. Like I said above, the only thing they can do is act to enforce their security interest.

In the case where a first mortgage actually forecloses through court process, the 2nd mortgage gets served as a defendant, and if they don't buy out the first then their lien gets terminated by operation of law. I'm not sure how it works in a short sale -- they may have some sort of right of first refusal to actually buy that house and attempt to sell it for what is owed to them. If they do nothing, then somehow their lien gets terminated. That "somehow" is probably worked out by the attorney who represents you at the time of sale.

As to the second actually foreclosing -- I am not sure what their rights are. They may be able to start a foreclosure, but obviously proceeds from the sale would go to satisfy the first mortgage before they see anything, and so it might be pointless for them to start a foreclosure if there's not a lot of equity in the house.

I wish you luck with the modification. But because the debt was not re-affirmed, they may not legally be able to modify it. You might try to refinance, or take out another loan to pay them off. If you are really intending on staying in the house, you should probably consult with an attorney who had knowledge in foreclosure and BK proceedings.

Thank you for the information. I didn't realize they might not consider a modification. I'm working on a modification on the 1st mortgage now and they seem to want to work with us so hopefully the 2nd will also.