Settlement on a post bankruptcy 2nd mortgage

Asked about 3 years ago - Philadelphia, PA

In July 2009 I got my Chapter 7 discharge and didn't reaffirm either the first or second mortgage. I realize the chapter 7 removed my personal liability on both mortgages, but I know they retained their right to foreclose for non-payment. The second lienholder is GMAC and after 7 months of negotiating and non-payment because of a loss of income, they sent me a settlement offer letter. The second mortgage loan balance is 70K and they are willing accept $6900. The letter states specifically upon receipt of the funds, GMAC will release its lien on the property and cancel the agreement. My question is, are they likely to try something shady, like take the money and not release the lien? Will they automatically have their name taken off the property? Should I be aware of anything unusual?

Attorney answers (3)

  1. Dorothy G Bunce


    Contributor Level 20


    Lawyer agrees

    Answered . This sounds like a pretty standard settlement. If you filed a Chapter 13 & lienstripped the 2nd, they would receive nothing.

    As long as the settlement offer is in writing, there shouldn't be anything shady about this plan. Take it to a local lawyer if you need someone to stand in as an escrow.

    Hope this perspective helps!

  2. Pierre George Basmaji

    Contributor Level 14

    Answered . Yes, read the fine print and take it to a consumer lawyer to be safe. Make sure they do not re-obligate you to the loan amount before settling it for $6900. If your second mortgage is a loan which you entered into after you purchased your home (such as a HELOC loan), settling it will be considered income by the IRS. You do not want to get a 1099 for $63,100.

    The information provided here should not be taken as a substitute for legal advice from retained local counsel. Mr.... more
  3. Mitchell Paul Goldstein

    Contributor Level 20

    Answered . I disagree with Mr. Basmaji. They cannot reobligate you on a discharged debt. They cannot even collect on it. However, they can exercise their rights under the lien. Get the agreement in writing and signed. Then, take it. That is a good offer.

    Mr. Goldstein is a Virginia-licensed attorney only. The information is not, nor is it intended to be, legal advice.... more

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