Mortgage Debt Settlement

[BonnieLC05]

What is the name of your state? Michigan

I am currently handling my father's financial affairs concerning his house in Michigan. He moved to Louisiana in November of last year because he got married to somebody who lives there. He tried selling the house but couldn't because of the horrible housing market in Michigan. He owed about 175,000 on his house but wouldn't have been able to sell it for more than 150,000, according to his real estate agent.

Well he hasn't paid his mortgage payment in about seven months because he would give his new wife the money to pay the bills and she would go shopping. He didn't find out about this until he found out his Michigan house was in foreclosure. His wife would destroy any mail that came their way about the house. Literally no bills had been paid for the house in months. Needless to say, he is now going through a divorce.

I found out about this and paid off all his bills concerning the house except for the mortgage and the property taxes, which are also delinquent. I ran out of money when it came to the mortgage and the property taxes. I also reinstated house insurance on the house. Well his house is currently in foreclosure and I have contacted the mortgage company. Apparently after his house went into foreclosure with his mortgage company, which was Option One Mortgage Company, his foreclosure got transferred to a debt collector, "Specialized Loans." I am working with them right now, trying to round up the money to send a monthly payment to them, which is $1439.63. They said that was the minimum they would accept in order to start working with us to avoid foreclosure. They want all his financial information including his paystubs, tax returns from the last 2 years, and all his monthly expenses. They also want a written statement about why he hadn't paid his mortgage.

He also owes about $20,000 total involving two different credit cards.

However, my mother told me that a lot of times a debt collector will buy a debt from another company for pennies on the dollar. She also said that there is some way to settle that debt. So for a $10,000 debt, she said that it may be possible to settle for thousands less. However, a lawyer must be involved.

My question is this: Is my mother right? Does it seem feasible considering my situation to contact a lawyer and do this? Or should I just work with the debt collectors and do as they ask?

Any input or advice is greatly appreciated.

[Debt Guy]

You have two different issues here. The mortgage is a secured loan and the credit cards are unsecured.

Mortgage lenders generally do not negotiate. They will foreclose, sell the collateral, and then seek to recover the deficiency. It is possible to reduce the damage some by trying to negotiate a deed in lieu of foreclosure. Basically, you deed the property to the lender. You will still need to deal with the deficiency.

Credit card companies and collection agencies who buy those types of debt are more flexible on negotiation. Yes, credit cards in default are often sold to third parties (but not always). The amount they pay is variable depending on the age and quality of the paper. Companies who buy those debts are in the business of making money. That means they can be flexible but they know some of the debts they will get nothing and some they will get all that is owed and some will be in the middle. They need to make it all average out so they can recover the cost of the debt, pay the cost of operations and make a profit at the end of the day. It is a profitable business but it is not as outrageously profitable as people think.

Before you charge down the path of trying to negotiate the debts, you should investigate bankruptcy. Only a bankruptcy attorney can tell you if it makes sense or not.