Giving Up House With 2nd Mortgage - How To Do It?

Question:
We have recently received our Ch7 discharge and want to give up our house because it is worth less than the first & second mortgages combined. How is this process supposed to work? Our attorney sent a letter to the 2nd mortgage holder saying we will do a "deed in lieu of foreclosure or other reconveyance". But he hasn't contacted the FIRST mortgage holder as far as I know. So specifically my questions are: 1. Shouldn't we contact the first mortgage holder also? They could be starting foreclosure proceedings right now as we have missed our 4th payment now, right? 2. Will we be able to give up the house without going through foreclosure? We don't want a foreclosure on our record if at all possible and it might still be possible to negotiate with the 2nd lender to pay them less than full to keep our house I'm not sure. We are in Washington state. Thanks for any info, we are unhappy with our attorney and he almost never returns calls so any help is greatly appreciated.

Answer:
I regret you have had a bad experience with your attorney. If you have any desire to keep this home I suggest you contact your local county bar association for a referral to an experienced chapter 13 bankruptcy attorney. Depending on the amount of equity in your home, you may be able to strip off the second and force the first to accept arrears through the chapter 13 (or force both mortgage holders to take arrears payments through the chapter 13). The chapter 7 discharge may actually help you get a chapter 13 case confirmed. Around here we call it a chapter 20. If you don't care about keeping the house, I don't think it really matters to your credit score if these creditors report the bankruptcy or a voluntary surrender. The lender may prefer a voluntary surrender, though. So as a courtesy I would notify both lenders that a voluntary surrender is possible. Problem with a Ch 20 is its really called filing in bad faith and the DOJ has really been watching these types of filings as of late. I would say that a better solution would be a short sale. Todd to answer your question, yes even though you have BK'd the house there will absolutely still be a foreclosure on your credit report. I would try first to do a short sale as 2nd lien holders are shorting like crazy right now. I have one im closing at the end of the month where the combined loss is $140,000. The first taking the bulk of that hit with $110,000. I am very familiar with washington states foreclosure process as I opened the territory up for our company. If you would like a consultation I would be glad to talk to you. Email me for my phone number if you want to know more.





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