What Is the Minimum GMAC Requires to Settle a Second Mortgage?

Second mortgage liens may be worthless if the home is underwater.

Since the housing bubble burst in 2007, millions of American homeowners have found themselves struggling to manage their housing expenses. The second mortgage is a particular problem for homeowners whose homes have dramatically lost value. When this situation occurs, the homeowner may attempt to settle the second mortgage for less than what's owed; anecdotal evidence suggests that GMAC borrowers may be able to settle second mortgage loans for pennies on the dollar.

GMAC Programs

GMAC offers a variety of programs for its borrowers who are delinquent or about to be delinquent on their home loans. It offers both short sales and deed in lieu of foreclosure options for some borrowers; if you apply for a short sale, the GMAC website states, you may be asked to make a contribution toward the loss on the property. How much you are asked to contribute depends upon how much you earn, your available resources and how much you owe.

Settling the Loan

Another option is trying to settle the loan for pennies on the dollar. GMAC does not advertise a minimum required amount to settle a loan -- and every situation is unique -- but many attorneys say that negotiating down the second mortgage has become a common practice. For example, Florida real estate attorneys Oppenheim Law noted that they were seeing "massive principal reductions." Charles Phelan, founder of SecondMortgageAdvice.com, has noted second-mortgage settlements of 10 to 15 cents on the dollar; that means settling a $100,000 loan for $10,000 to $15,000. Keep in mind that settlements are subject to several considerations. You'll have to be severely delinquent and at serious risk of foreclosure. GMAC may only consider settling if it feels that it has no chance of getting any proceeds out of a foreclosure sale, which is generally the case with second mortgages.

Consequences of Settling

While settling the second loan is tempting, there are severe consequences. In each of the reported cases, the borrowers were several months' delinquent on their payments. When this happens, your credit score takes a significant hit. When you settle your loan for less than the amount due, it takes another one. These events stay for years on your credit report, according to MyFICO.com. There may be tax consequences, too. While forgiven debt is usually added to income and taxed, special exceptions apply to forgiven mortgage debt in 2011.

Alternatives to Settling

If you're behind on your loan and are uncomfortable with the idea of settling your debts, there are other alternatives. Contact GMAC and see if it will consider agreeing to a forbearance plan. Forbearance temporarily reduces or suspends your payment. Another alternative is bankruptcy; although declaring bankruptcy has the most serious consequences of all negative credit actions, it does have the power to stop collection activity for awhile. Chapter 13 bankruptcy, also called reorganization bankruptcy, lets you repay your debts over time. You'll have to pay the past-due balance in full, but you'll get to keep your home. Regardless of what option you choose, stay in touch with GMAC. It would much rather see you resume payments and stay in your home.

References

• GMAC Mortgage: About Homeowner Assistance
• Low FICO Funding; Underwater? Negotiating a Settlement on a Second Mortgage; Gerri Detweiler; July 14, 2011
• Oppenheim Law; Second Mortgages Lead to Misery or Modification for Florida Homeowners; June 8, 2011
• Bills; What Are the Ramifications of a Second Mortgage in Charge Off Status?; Sept. 20, 2011

Resources

• Active Rain: Effective Short Sale Escalation;
• Loan Safe: 2nd Mortgage Offering Settlement