Here’s the story in a nutshell. I purchased a condo in 2005 on an ARM. Just out of a divorce, I decided to consolidate some debt with a home equity line of credit called a 125% loan. Bad move, since I didn’t first refi the ARM. Now, the housing market has slumped, my property value is down, I have negative equity, and I can’t refi. The ARM has gone up and is due to go up again in a couple months. My payment has doubled and I can’t afford it. What will happen if I default on the 1st mortgae but remain current on the second? In other words, what happens to the second mortgage, and how might I be liable even if the payments are current on that loan?