What would happen if we stopped paying the 2nd mortgage?

Here’s the whole question before we begin:

“I wanted to know if you could help me and my wife. We have an 80/20 mortgage with 2 separate mortgage companies and currently owe $245,461.01 on the first mortgage (at 7.3%)and $57,896.97 for the second mortgage (at 12.5%) for a total of $303,357.98. My problem is the houses on our street that are identical have sold recently for only $259,900 and we owe $43,457.98 more than we could even sell the house for. We are unable to pay both the 1st and 2nd mortgage due to our financial situation. We were wondering what would happen if we stopped paying the 2nd mortgage? We have tried to renegotiate with both mortgage companies and they refuse to do anything to help us. We have 3 small children and just are afraid of losing our home and a place to live. I hope you can give me some advice.”

My answer:

I wish I could say I’ve never heard this story before..but I have. With the foreclosure crisis in full swing lenders are not eager to help out, especially before the borrower goes into default. You really can’t get any help from them until you actually go into default. It’s sad but they are not interested in preventing a foreclosure because they swamped dealing with folks actually in foreclosure.

So, given that, and I hate to say it…if you want to get their attention, you’ll simply have to stop paying on the mortgages. This forces them to deal with you. In your case you could stop paying only on the second, then call and ask for a short payoff and sell the property.

Of course, this puts at risk for losing the house should they still not want to negotiate. But it maybe worth a try, since you say you can’t afford the house currently anyway.

Keep trying to contact them and get a short sale package from the second lender after you go into default. Tell them your story. Let them know your can’t afford both mortgages and you are willing to sell the house…and try to get them some money on their second…be it will just be a small amount due to dropping home values.

If you get them interested enough to look at the values to see foreclosing on you is a losing proposition for them, you might get a yes or you might get a loan modification offer like a moratorium on payments for a couple of years.

Good Luck!