If a homeowner’s primary mortgage is underwater, does he or she have a chance at refinancing or taking out a second mortgage?
A real estate attorney’s answer might be qualified, and perhaps dependent on the outcome of two pending appeals before the U.S. Supreme Court. The appeals, brought by Bank of America, originate in the 11thCircuit. However, their ramifications could be far-reaching.
The bank is challenging the practice of some bankruptcy courts in the 11th Circuit of liquidating second mortgages on homes whose fair market values are below the amount owed on the first mortgage.
Readers may be questioning how a homeowner with an underwater mortgage was able to obtain a second mortgage. For example, many lenders require some equity before approving a mortgage or refinance, perhaps as high as twenty percent. However, one of the lessons we learned from the recent housing crisis is that unfavorable mortgage and refinancing packages may be available to consumers.
Before agreeing to an unfavorable mortgage, refinancing package or a second mortgage, a borrower may want to consult with a real estate attorney who has experience in residential real estate transactions. An attorney may have other options to suggest.
For example, a federal program called the Home Affordable Refinance Program allows certain homeowners to refinance a loan that is higher than the home’s value, perhaps up to 125 percent. Another federal program is the Home Affordable Modification Program, which may be available to borrowers in danger of defaulting on their mortgage from Fannie Mae, Freddie Mac or certain other lenders.
Source: Boston Herald, “Court to consider when second mortgage can be void,” Nov. 17, 2014
Source: makinghomeaffordable.gov, “Explore Programs“