How to Negotiate With a Second Mortgage After Bankruptcy

Negotiating with the lender on the second mortgage on your home can sometimes be a very tricky task to accomplish. However, filing for bankruptcy gives you some degree of leverage in negotiating with the second mortgage lender in that neither it nor the holder of the first mortgage can foreclose until the bankruptcy automatic stay is lifted. Therefore, if you have filed for bankruptcy, it is the perfect time to negotiate with the holder of your second mortgage.

Instructions

1. File your bankruptcy with your local bankruptcy court. Seek the aid of an experienced bankruptcy attorney if at all possible. If it is very difficult or impossible to make the payments on your second mortgage, consider stopping the payments. The mortgage company cannot foreclose until they have obtained relief from the automatic stay.

2. Call the mortgage company and request a loan modification application package. Explain that you wish to continue paying for the mortgage, but you would like a modification to reduce the payments, the principal, interest or all of them.

3. Fill out the required documentation sent to you by the mortgage company. Often, the company will require you to write a hardship letter. The hardship letter details your income, your expenses and any expected debts after bankruptcy. You likely will need to provide pay stubs and other forms of verification of the information contained within the letter. Make copies of each document for your own records. Send the application, letter and other documentation via certified mail.

4. Contact the company after at least a week to determine the status of the documents. Many mortgage companies tend to lose documents, and you may be required to send the documents again. If the mortgage modification process is taking a long time, the bankruptcy judge may be inclined to extend the automatic stay until a decision is made by the mortgage company.

5. Receive your modified loan package from the mortgage company. If possible, review the new terms with your attorney. Accept or reject the modification according to the directions contained within the package.

Tips & Warnings

• This article does not constitute legal advice. See an attorney.

References

• "Bankruptcy and Debtor/Creditor Examples and Explanations"; Brian A. Blum; 2010
• "Bankruptcy Code, Rules and Forms"; Thomson West; 2010
• "Collier on Bankruptcy"; Alan N. Resnick, et al.; 2010