If you're a homeowner who is struggling with an underwater mortgage, facing foreclosure and have a second mortgage that won't be covered even if the home was sold, you may want to consider bankruptcy. Many homeowners are finding that when they are trying to resolve second mortgage issues outside of bankruptcy, they are facing a second mortgage time bomb.
Below are a few signs that you may be sitting on a second mortgage time bomb:
- You're underwater on your mortgage. The amount of money you owe on your first and second mortgages is significantly more than the value of the home. If that home is foreclosed on, the amount of money earned from the foreclosure may not cover any of the second mortgage. And if you think the second mortgage holder will simply walk away from their money, you're mistaken. Many second mortgage holders do go after debtors, sue them or even report the debt as "forgiven" resulting in a huge tax bill, especially if the property was not the debtor's primary residence.
- If you're not underwater on your home; but have found it difficult to make mortgage payments on your home, you may be sitting on a second mortgage time bomb. Some homeowners who are not underwater; but succumb to foreclosure find that they can still have a deficiency balance with their second mortgage lender. Many homes do not sell for market value during a foreclosure which can cause the second mortgage to go partially or fully unpaid.
- And finally, if you have already lost your home to foreclosure and received a deficiency judgment from your second mortgage holder, you are definitely sitting on a second mortgage time bomb. Failure to respond to the deficiency judgment won't make it go away. The second mortgage lender has the right to pursue you for payment, so you could eventually face "surprise" actions such as a lawsuit and eventually asset seizures if you leave a second mortgage deficiency unresolved.