Upside down on your home? You might turn your Second Mortgage into unsecured debt with a bankruptcy. That’s the upshot of this brief article from the San Jose Mercury News. From what we can tell, this strategy may be worth knowing for some Northstate homeowners who find themselves upside down on their mortgage (owing more than the current market value of their home).
“Bankruptcy laws prevent homeowners from eliminating the debt of a first mortgage if they plan to stay in their home. But second mortgages are treated differently. They can be declared unsecured debt when there is no equity to cover them, as is the case for millions of houses that are now worth far less than a few years ago.”
“A few years ago” there were ads all over the place, imploring homeowners to free up the bubble “equity” in their homes. The many that followed that siren song now find themselves in an untenable financial position. While the idea of eliminating a debt without paying it carries moral hazard and an ethical price, the entire Second Mortgage industry bears blame as well. This may be an effective strategy worth knowing. Read more at the financial article below.