Many times when a homeowner is granted a loan modification on the first mortgage, there may be a second mortgage or home equity loan that remains in default. The big question is what to do about this second mortgage? Typically the second mortgage has been in default for sometime and there is a resulting arrears. Many times when the first mortgage company agrees to modify, it usually will require the homeowner to start making trial payments soon thereafter so there is not much time to get the second modified. Notwithstanding, the second mortgage company typically will only modify after the first mortgage is modified anyway. Usually then the homeowner will start the trial period with the hope that the second will modify its mortgage favorably to the homeowner. If, however, the newly modified mortgage payment on the first mortgage combined with ordinary household expenses consumes most of the homeowner's monthly income then there may be nothing left over for the second mortgage, making a modification of the second mortgage unlikely. If the second mortgage company is unwilling to settle for much less than what is owed it then the second mortgage may just hang in limbo with its arrears increasing by the day--an unsettling feeling to any homeowner. However, under this situation, the second mortgage company probably won't foreclose if the first mortgage is owed an amount near the value of the house, but if the amount owed on the first mortgage is significantly less than the value of the house then the second mortgage company would need to seriously consider its right to foreclose on its second mortgage.
It is worth mentioning that if the amount owed on the first mortgage exceeds the value of the property, the homeowner may have the ability in bankruptcy to have the second mortgage lien stripped off the property. This is the case in the 11th Circuit, but as of now, it is not the case in New York, well at least not in the Eastern District of New York.
It is worth mentioning that if the amount owed on the first mortgage exceeds the value of the property, the homeowner may have the ability in bankruptcy to have the second mortgage lien stripped off the property. This is the case in the 11th Circuit, but as of now, it is not the case in New York, well at least not in the Eastern District of New York.
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