Expert: Jessica Bryan - 9/20/2008

Question
Hi Jessica,

I have a question for you regarding negotiating my 2nd mortgage with Bank of America. I have a house in burke, VA. We bought it in 2005 for 358 k. By we, i mean me, my brother and his wife. All three of us are in the title, but the first mortgage and 2nd mortgage were all in my sister in law's name since she had great credit. We didn't put money down at all, so the ratio is 80% first mrtg which is 286400 and 20% second mrtg which is 71600. Then on 2006, when the house market were peaking, i had to take 65000 of home equity for personal reason, so the 2nd mortgage became 136600. Then on 2007, to save interest, i refinanced the 2nd with Bank of America with fixed rate for 30 yrs instead of 5 yrs ARM which was pretty good deal. I refinanced it under my name, not my sister in law's, but the 1st mortgage is still under her name. Now situation is very much different. I lost my job, have to support my dad who is very ill, and i can't afford to pay my 1st and 2nd mortgage anymore. Friend of mine who is a loan officer offered to help by negotiating with Bank of America to wipe out the loan and settled for way way less. He did it with three of his clients before with wachovia, countrywide and aurora, and their 100 something thousand dollars 2nd mortgage were wiped out and settled for in between 10000 to 15000 dollars. I was encouraged to do this since i can probably loan 15000 dollars and settled the 2nd mortgage. I was late for 3 months, then BOFA were ready to negotiate. The paper work of loan modification came in 2 weeks ago and the refused to settle. They gave me 21000 discount on the loan, and cut the interest rate from 7.69% to 4.69% but still 30 yrs length. I saved 350 dollars but again i still want to settled for 15000. They said if i don't agree with this, they have to foreclose the house. I was very surprised because my friend said that they will not be able to do so because the 1st mortgage is under my sister in law's name and she never make a single late payment. How is bank of america can foreclose the house if the 1st mortgage is still being paid? I don't know if BOFA is just bluffing or what...but i am scared as hell. Bottom line is that i don't want to screw my sister in law's credit score, because i was assured that as long as the 1st mrtgage is still satisfied, the 2nd mortgage usually agree to settle because they have no choice.
Please help me to resolve this matter. All i care about is to be able to live in the house and not bothering my sister in law's credit. The 1st mortgage 5 yrs ARM is expired on September 2009, and i am scared if the payment will be different after that. I am trying to refinance but can not do it because house price is upside down.


Answer
Dear Agus;
This is a very difficult matter.  The mortgage companies are changing their policies on almost a weekly basis!  I can't really advise you what a mortgage company will do in these difficult financial times.  I would say that the best source of advice is to go to a lender and discuss it with him/her.  A lender should be able to access the most current information about Bank of America policy.  Please understand that in even the best of times,lenders are not very likely to forgive a large loan let alone in these times when they have so many people defaulting on payments.  In a case of default, the second trust deed uses equity from the house as a guarantee and they have the right to go after the collateral that you have represented regardless of who is making the payments.  Since the home is in your name along with your bother and sister in law, it is a valuable possession that you have used as a back up for the loan in the event it should be needed.

Since there are three of you on title, it makes it a little more complicated and a real estate attorney may have to advise you on that. You should look over the paper work you signed when you got the mortgage and see what it says about default on your second. For now, I would continue to try to find a resolution with the bank before they take other action.

Good luck and best wishes,
Jessica Bryan