How to Deal With Foreclosure and Second Mortgage

Avoid foreclosure on your first and second mortgages with special programs.

Dealing with financial issues can make it difficult to raise enough cash for a first and second mortgage. If you are struggling financially, it's important to work with lenders right away. There are special programs that allow you to avoid foreclosure on both your first and second mortgages. Lenders are willing to reduce monthly payments through loan modification or grant forbearance to take the financial pressure off.

Instructions

1. Apply for loan modification. Reducing the payment amount on the first mortgage can make paying the second mortgage less of a struggle. If total debt, including the first mortgage, second mortgage and other debt obligations exceeds 55 percent of your monthly income, you qualify, according to CNN Money. Contact your first mortgage lender to apply.

2. Request forbearance on your second mortgage. Forbearance programs are created for people struggling from serious health issues or job loss. The program allows you to stop making payments on your second mortgage for a set time period. Apply for forbearance on your first and second mortgages. After the forbearance period ends, normal payments will resume again plus a small additional payment to cover missed payments.

3. Refinance your second mortgage. Some lenders offer refinancing at no cost to the borrower. If interest rates are lower, this will lower your monthly payment. You can also request a refinance on your first mortgage to drive down total monthly debt obligations.

4. Catch up on missed payments. Talk with the lender about creating a catch up plan if you have missed payments. This will take your mortgage out of default status which will help improve your credit score.

5. Request a short sale from your lenders. Call your first and second mortgage lenders and request a short sale. If approved, the lenders agree to accept less than the owed amount for the debt obligations. Short sales are typically approved when the borrower is behind on monthly payments and she owes more than the home is worth.

Tips & Warnings

• If you owe more on your mortgages than the home is worth, talk with your lender about alternative refinancing programs. For example, Fannie Mae offers special programs, allowing borrowers to refinance as much as 125 percent of the home's market value. This will assist in lowering monthly payments.

• Loan modification is typically available on first mortgages only. If the modification is approved, it's for a specific period of time, such as 40 months.

References

• Fannie Mae: Refinance Plus
• CNN Money: Mortgage Help, Do you Qualify?
• Fannie Mae: Avoid Foreclosure