An Empty Threat

Stephanie has been threatened with foreclosure on her second mortgage, but Dave doesn't think there is too much to fear.

QUESTION: Stephanie has a first mortgage for $140,000 and a second for $45,000. The house is worth $160,000 and she has been threatened with foreclosure on the second. Dave runs some numbers and tells her why she doesn’t have much to fear from that threat. When she tells him about the settlement offer she got, he answers that too.

ANSWER: About 90% of the time, that threat is a lie. With these numbers, they’re not going to foreclose. The reason being is that they have to pay off the first when they do. The house is not worth enough to cover the second mortgage. If they sold it for full retail and had no costs, they would only get back $20,000 of their $45,000. If that’s the case, then they’ve invested $140,000, not counting expenses, to try and capture $20,000. The chances on them foreclosing on this are zero.

If you can settle it for $5,000 and you have that in writing, I’d take that in a heartbeat. Send that letter you have to the people who bought this loan and tell them that, if they can match it, you’ll try to scrape together the money. But you know they aren’t going to foreclose, so they can kiss your ankle.

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