What is the statute of limitations after taking chapter seven bankruptcy in the state of Illinois, for a second mortgage to be null if I have reafirmed on the 1st. mortgage? I went bankrupt in 2001 I reafirmed on the initial mortgage and not on the 2nd. can I ever sell the property without paying the second mortgage?

Dave

Dr D

I don't have an answer to your question. In a Chapter 7 Bankruptcy unsecured debts can be discharged. With a secured debt such as an auto or a home, the lender can recover the property if you don't pay on the debt. If you have not made any payments on the second mortgage since 2001, why has the lender not foreclosed on the house?

ScottGem

A second mortgage is subjugated to the primary. Therefore the secondary can't foreclose. However, the secondary DOES have a lien on the property and can (and will take) what's owed them when the property is sold. If the 2nd is accruing interest, they might be able to take whatever equity you have.

Dr D

While I have the highest regard for ScottGem, I respectfully disgree. Even though the second mortgage is in a subordinate position to the first, the second lienholder absolutely has the right to foreclose. If the first is in default, then the second has to bring the payments current on the first, and start foreclosure action to preserve its interest in the property. If the second fails to do this, or chooses not to (in the case of an overencumbered property), their interest in the property will be wiped out upon foreclosure by the first and their only recourse will be to sue the mortgagor/trustor on the basis of the promisory note. If a second, third, or tenth mortgagee did not have this right, second mortgages or HELOC's would not exist.

ScottGem

My understanding is that the reason HELOC and second, third and fourth mortgages exist is to make money for the lender. The reason why such loans are labeled second, third, etc. is because they take a subsidiary position. In any sale of the home, the primary lender gets their funds first, then the secondary, etc.

HELOCs are called Home Equity loans because they are secured by the owner's equity in the home. Generally, these loans are not made unless the balance on the primary plus the amount of the secondary is less than the value of the home. Otherwise, interest rates will greatly increase because the lender is taking a greater risk.

I did do some research and its appears the junior leinholder can initiate a foreclosure at least in some areas. But by doing so, they must guarantee the primary leinholder will be paid off.

Dr D

You are correct Scott. One factor that greatly affects the rate paid on a HECOC is the Combined Loan To Value (CLTV) ratio. This is the sum of the first and proposed second divided by the value. A CLTV of 70 or 80% will give the lowest rate. 90% will give a higher one. 100% will be much higher if available. There are a few lenders out there willing to lend up to 125% CLTV. Such loans in my opinion are sheer insanity and invite disaster for the borrower.

ScottGem

Its all Risk/Reward. Someone who makes a good income, has a good credit history but has gotten themselves into debt for whatever reason, might make a good risk considering the higher return.