I have a friend who owns a house that she is renting/renting to own to another friend. The people renting are defaulting on their payments and she is considering her options. She really cannot afford to make the payments that are behind to keep it out of foreclosure and doesn't know if she has enough time before foreclosure to evict the current tennant, and sell it. She has just now gotten her credit cleaned up but their late payments are killing her scores. They have supposed to have been buying the house and getting it financed but so far nothing so her only other option is to evict and sell or let the house go. Her question to me was: There are two mortgages on the house. The first mortgage she filed bankruptcy on in 1998 but re-affirmed( I guess since she still has the house). The second mortgage was taken out in Nov. 1999. If she lets them forclose on the house what happens? Do they pay off the first mortgage first and the second mortgage gets whats left? Does the first mortgage get there money even though she included them in the bankruptcy? Or would they pay off the second mortgage first since the first was filed in the bankruptcy? If the sale amount is not enough to cover both they will charge her for the difference and will there be a judgement or how will it show on her credit reports? Also what are the effects on her credit (I know not very good) and her chances of getting another mortgage before it drops off. She does by the way have a third mortgage on her current residence. Will a positive report on the third mortgage help if she decides to sell and get another mortgage in the future? Also, she lives in TX but the rental home is in KS will that make a difference on the forclosure? The Bankruptcy was filed when she resided in KS. Any help would be appreciated. Thanks, Andra
If she reaffirmed the first mortgage, she has a valid first mortgage, and the Bankruptcy is irrelevant. If she did not reaffirm but is just paying on it (as I am doing), the Bankruptcy got rid of her obligation to pay the loan, but it did not get rid of the first mortgage company's security interest in the house. So in either case, the first mortgage company is first in line for the money. They get paid first, then the second mortgage. If there isn't enough to pay both, she is liable for the difference. She would be way better off if she could sell the house. If she lets them foreclose, they aren't going to get anything close to top dollar for the property, and she's pretty much guaranteed to owe money. I believe that she cannot sell it unless she can pay off all of the mortgages in their entirety at the time of sale. If she can't, she'll have to let them foreclose. Foreclosure goes on her credit report, and it really sucks. It's probably as bad as the Bankruptcy, if not worse. It will last for seven years, and she'll have a very hard time getting a mortgage for the duration of that seven years. If she can't make up the shortage, she can forget getting another mortgage for the duration. The mortgage on her current residence is always a positive (as long as it's current), but it isn't going to be enough to help overcome a foreclosure.
How far behind on payment is she? I'm wondering if it is rent to own if rather than evict she has to foreclose? Sometimes mortgage companies will work with you (they don't want to foreclose), but do they know it is not owner occupied? You may have to involve an attorney.
