Expert: Regan Shinski - 3/24/2011

Question
Regan,

How would you recommend I approach attempting to settle with my 2nd mortgage lien holder?  My objective is to minimize the $$ amount while also minimizing the hit on my credit (I understand these are conflicting objectives).

The home is my primary residence, worth about $165k.  1st mortgage balance is $172k, and the 2nd balance is $31k (Citimortgage).  I am current on both.

I have cash available to settle short notice.

What does a lien holder such as Citi typically look for when deciding if / how much to settle.  What conditions typically must be met, etc?

Answer
Hello Chris:

It will be virtually impossible to settle the second mortgage for less while maintaining your credit the entire time.  The reason is lenders have no incentive to settle since they are already being paid.  Of course, it never hurts to try, but lenders are actually tightening their standards on settling and starting to take their chances more often.

So your option is a risky one but one that can be done and overcome.  Basically, you must let the second mortgage get behind enough to the point the creditor believes their only way to get ANY money is to settle.  After it is all said and done, you use credit repair to delete the late and settled derogatory information from your credit reports.  (That is actually the easy part!)

Obviously this carries a big risk without certain reward.  You need to learn the foreclosure laws in your state first.  A wise option is to keep funds behind and know the redemption date - the date you can still pay the back payments and redeem the loan.  This way, you negotiate as best you can up to that point and then decide if you want to pay and keep the loan or risk some type of foreclosure and/or collection process.  The fact that you are upside down on the first mortgage will help you a lot in this process because the second lien holder knows they are in a very poor position to actually collect funds through a formal foreclosure.

As far as negotiating, once you get to the lowest possible point, that is when you would want to enter into an agreement.  The more likely the lender thinks they will get NOTHING without settling, the easier it is to settle.   Basically keep that last sentence in mind and everything else sound make common sense.  If they think you are walking away from the property, lost a job, have medical issues, or any other factor that would keep them from getting more money in the future, the better it is for you.

Once it is all said and done, use credit repair to delete the bad information.  See more information and proof at www.ficofighter.com/proof.htm.

Good luck, I hope this helps.  There is no magical answer and it will depend on the people and individual creditor you are working with.

Regan