Should I continue paying for my second mortgage?

It is unlikely that the second mortgage company will receive funds after the first mortgage company forecloses. If you reaffirmed your debt to the second mortgage company, the second mortgage company will have the right to sue you to collect the balance of the second mortgage. Including placing a judgment lien on your real estate.

Why would you have signed the reaffirmation agreement with the second mortgage if the first mortgage lender didn't offer to allow you to reaffirm? What possible value would it be to you to pay on the second mortgage if you're going to lose the house in the foreclosure of the first mortgage. Why did the judge approve such an inane action. If you have a lawyer handle your bankruptcy, you should sue her/him for malpractice - if you didn't have a lawyer, then WHAT WERE YOU THINKING? Since you reaffirmed the second mortgage, you're still liable on it: the foreclosure will appear on your credit report, the second mortgage lender can come after the house you inherited, if it's not paid off in the foreclosure (and it would be almost impossible for the second mortgage to be paid off in the foreclosure where you haven't paid on the first mortgage since 2005, the interest, late payment penalties and costs of foreclosure will certainly be greater than the sales price of the house).

Since you reaffirmed the second mortgage, you are personally responsible for paying it. If you don't pay, the creditor has every right to foreclose or to sue you for the entire balance. Once a creditor obtains a court judgment against you, there is a wide range of actions it can take to collect the money you owe. The only thing that protects you are state laws called exemptions. If after suing you and obtaining a court judgment, whether the creditor can take and sell the property you inherited to pay for this judgment depends on whether you are living in the inherited house and how much it is worth. This is covered by those confusing state exemption laws. And of course a foreclosure on the second mortgage will show up on your credit report by reaffirming this mortgage you agreed to let this happen.

There are a couple of issues here. First. the foreclosure will go on your credit report. As to the second mortgage, is it an SBA loan or other government backed mortgage? If so, you will probably be personally liable as you signed a personal guarantee as part of the loan process. If not, that gets into why Texas does not reaffirm mortgages. Under the constitution, you are not personally liable for a mortgage on your homestead. If your reaffirmation included a personal guarantee, you may have incurred liability at that time. While I hate to say it, your problem will require that you contact an attorney to review all of your documentation to determine your liability.

The foreclosure will go on your record, you are liable for the second mortgage and after a judgment the reaffirmed second mortgage holder has full creditors rights which includes going for your equity in the inherited home. See an attorney with details and for advise.