CENTRAL FLORIDA — Central Florida homeowners who took out a second mortgage and can't afford it could be getting some relief.
The 11th Circuit Court decided over the summer that homeowners facing foreclosure could slash their second mortgage, saving them thousands of dollars.
Realtor Vivian Lehman said at the height of the real estate boom, virtually every client she had used what's called the "80/20."
Clients would put 80 percent of the cost of a new home on the first mortgage and 20 percent on the second mortgage.
WFTV's Jamie Holmes asked how many of them used the 80/20 to be able to get into the home in the first place.
Lehman replied, "I'd say 90 percent."
Fast-forward to the present day.
Nationally, 47 percent of those homeowners are now in over their heads and can't afford to pay that second mortgage.
Now, thanks to the 11th Circuit Court of Appeals, they've gotten a big break.
The 11th Circuit Court, which includes Central Florida, ruled homeowners can slash the second mortgage and just focus on paying their first mortgage.
Attorney Justin Clark said the new ruling could be just what imperiled homeowners need.
"We're going to be saving properties, these people are going to take care of their house, they're going to pay their first mortgage again," Clark said.
Are these homeowners essentially walking away with free money?
Clark said no.
Typically in a foreclosure, the second mortgage is wiped out anyway, he said.
Clark said it gives homeowners a chance to stay in their homes.
"People say, 'Well, this is bad for the banks, how could you let this happen to the banks?' I think it's wonderful for the banks, because what's going to happen is people will start paying their first mortgage," Clark said.
Lehman agrees, but she said banks have already cracked down.
It will be a lot harder for everyone else to get a second mortgage, she said.
"We see that now; only the government-backed loans are the ones that are 3 ½ percent down," Lehman said.
It costs about $2,000 in legal fees to file Chapter 7 bankruptcy to cut a second mortgage.
By the end of the year, the U.S. Supreme Court could reverse the decision of the lower court,so homeowners considering doing so may not have much time.
WFTV
