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Mortgage Hassles and Credit 'Counselors'

By Dave Ramsey
Author, The Total Money Makeover – Financial expert Dave Ramsey gives his advice on balancing two mortgages and the validity of credit counselors.

Mortgage Company Won't Let Us Sell Our House

Dear Dave,

My wife and I recently moved, but we still own our old house out of state and owe about $122,000 on that mortgage. We took out a 125% mortgage to allow us to do debt consolidation and give us extra cash. We owe about $34,000 on that second mortgage, so now we owe $156,000 on the house and it’s only worth $150,000.

We’ve been trying to sell it for six months with no luck. We’re still paying the mortgages on that house plus we have a mortgage on our house here in Michigan.

We can’t do this much longer. What should we do?


Dear Chad,

You’re now a living example of why you should NEVER take out a 125% mortgage under any circumstances!

Call the company that holds the second mortgage on your original house and tell them where you are. Let them know that you’re ready to hand them the keys unless they’re willing to work with you. Remind them that at the moment they have a partially-secured second mortgage for $34,000, of which around $10,000 or more is unsecured. You can make payments on a $34,000 loan, but you can’t make the payments of a $156,000 loan, which is the total of your two mortgages on that house.

Then, get them to admit that you don’t have a collateralized loan. They already know this, but it needs to come out of their mouth. Suggest that they allow you to sell this property for less than $156,000 and you will sign a note for the difference.

For instance, if it sells for $136,000, the mortgage companies get all of the proceeds and you sign a note with them for $20,000. See if you can get them to sign a partial release under those circumstances.

If they’ll do that, you can reduce the price of the house and put an “Owner Desperate” sign in the yard to get that thing sold. You’ve got about a 50-50 chance of them accepting this kind of arrangement.

If your credit is still clean, another idea is going to a local credit union and borrowing $15,000 or $20,000 on a signature loan to pay down this second mortgage to the point where you can sell the house for enough to pay it all off. If you go that route, I wouldn’t send the money from the signature loan until you’re ready to pay off the house altogether. That way you aren’t stuck with yet another payment until the house sells! 


Debt Counseling Companies

Dear Dave,

I have a friend with about $30,000 in credit card debt, an $80,000 second mortgage, and a car loan. She makes about $70,000 a year, which isn’t a lot by California standards, but not a bad living. She’s considering using a credit counseling service to help. I’ve explained to her that this will hurt her credit, but she doesn’t see an alternative.

They want her to set up a special account into which she will make monthly payments and they’ll use that money to pay off her debts in about 30 months. They’ve told her that they can negotiate her credit card debt down to almost half of what it is now, but there’s an 18% fee for the credit counseling service built into this payment schedule. What is your feeling about this deal?


Dear Frank,

She doesn’t need to get caught up in this deal for several reasons. As you’ve said, it will destroy her credit with regard to buying a home. Almost any lending institution she goes to will count her using a credit counseling service as if she had filed a Chapter 13 bankruptcy.

Second, she will literally have her credit destroyed. That’s how they get her the negotiated discounts on the credit card debt. Credit card companies don’t settle on your debts because your payments are on time. Some of these “counseling” companies withhold credit card payments until the account is 90-180 days past due. Then, they will contact the lender and negotiate to settle the bad debt. See where I’m going with this?

Also, be warned that some of these credit counseling services are a scam. And some of those scam companies go so far as to request a power of attorney, which these people in debt are either naïve enough or desperate enough to sign over to them.

Your friend needs to handle this herself, and the best way to do that is making her money behave by creating a monthly budget. She could sell a bunch of stuff, pick up a part-time job weekends, and she probably needs to sell that car and find a cheap little beater to drive around. Regardless, she’s got some tough decisions ahead if she wants to free up her cash flow and clean up this mess!

This whole situation is about lifestyle and living on a plan. And she’ll be much better off taking care of things on her own rather than having some “counseling” service do it for her!



For more financial advice and a special offer to our readers, please visit  or call 1-888-22-PEACE.

Dave SaysDave Ramsey is a nationally-syndicated radio talk show host and author of the New York Times bestselling books, Financial Peace Revisited and The Total Money Makeover. His life-changing advice in the area of personal finance helps people get out of debt, stay out of debt and build wealth that will last a lifetime and beyond.

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