Posted on: 17th Sep, 2008 12:30am
If you're in financial hardship and you're not paying second mortgage for 150-180 days from the due date, the lender may foreclose your property or file a lawsuit and seize your personal assets. Read through the section below and find out what happens if you stop paying second mortgage.
What happens if I stop paying second mortgage?
If you're not paying your second mortgage, and your home is upside down (combined balance on 1st and 2nd loan exceeds the home value), the lender may not file a foreclosure. That's because he'll have to pay off the first loan before he intends to retrieve the money he has invested on the 2nd loan.
However, even if the second lender forecloses and sells the home for less than the balance on 1st and 2nd loans, the law may not require you to pay the difference or deficiency balance provided the second mortgage is a non-recourse loan. Moreover, certain states have anti-deficiency laws which prevent one from paying the deficient amount provided the second mortgage (such as the 20% of an 80/20 loan) is used to purchase a primary residence.
However, if the second mortgage is a recourse loan, and your state doesn't follow the anti-deficiency laws, the deficiency balance needs to be paid off. In case you don't pay the deficiency or if the lender doesn't foreclose at all, here's what may happen:
However, even if the second lender forecloses and sells the home for less than the balance on 1st and 2nd loans, the law may not require you to pay the difference or deficiency balance provided the second mortgage is a non-recourse loan. Moreover, certain states have anti-deficiency laws which prevent one from paying the deficient amount provided the second mortgage (such as the 20% of an 80/20 loan) is used to purchase a primary residence.
However, if the second mortgage is a recourse loan, and your state doesn't follow the anti-deficiency laws, the deficiency balance needs to be paid off. In case you don't pay the deficiency or if the lender doesn't foreclose at all, here's what may happen:
- Judgment/garnishment: The lender may file a lawsuit in the local court and get a judgment order to collect the unpaid balance. He can come after your assets such as bank account funds. The lender may have your wages garnished. Wage garnishment is a legal process in which an individual's earnings are partly or wholly withheld by the employer (as per court order) for repayment of debt.
- Charge-off: The lender may issue a second mortgage charge off and assign or sell off your debt to a collection agency (CA). The agency will then try to collect the loan payments by all means. If you don't make any payment, here's what the CA can do:
- Harassing calls/letters: The collection agency is likely to harass you with repeated phone calls or payment notices/letters. They may even call you at odd hours and disturb you at your workplace, though such practices are against the Fair Debt Collection Practices Act (law which governs the practices of CAs).
- CA may file lawsuit: The CA may even sue you thereby leading you to legal hassles. They may even get a judgment order from the court and go for wage garnishment or seize your bank accounts.
However, if your second mortgage debt is well past the Statute of Limitation (SOL), the collection agency cannot file a lawsuit. Even if they threaten to sue you after the SOL is over, send a cease and desist letter stating that your debt has crossed the SOL, so they shouldn't contact you any more. Still if they harass you for payments, file a complaint with the FTC or State Attorney General.
What to do if I can't pay second loan
Once your home is sold off at a foreclosure auction, the second mortgage debt or the deficiency balance on it will be considered as an unsecured loan which you can pay off in monthly installments. In case you can't afford to pay the deficiency balance in full, you may negotiate a settlement with the lender or the collection agency to whom the lender may have assigned/sold off your debt.
Paying your second mortgage will help you minimize the chances of getting hit with negative remarks on your credit report. You can thus avoid trashing your credit score and improve your chances of getting loans in future.
Paying your second mortgage will help you minimize the chances of getting hit with negative remarks on your credit report. You can thus avoid trashing your credit score and improve your chances of getting loans in future.
i have a 1st & 2nd mtg and i have requested a short sale. i am able to make my 1st mtg payment but i do not have the funds to make my 2nd mtg pymt. if i stop paying second mortgage what happens? can the 2nd lender foreclose on my house? and if not, what happens to the 2nd loan? if they charge off & put a lien on my house, then i will never be able to sale it because i owe more than the house it worth? any advice? also, if they charge off & put a lien on my house, can i then bk it?
After finally getting a loan mod. with our 1st the 2nd charged off and now a c/a is threatening "legal action". If this means getting a judgement and garnishing wages wouldn't that tell me that the debt is now unsecured? If the home IS still the security that the loan was based on wouldn't they HAVE to foreclose and then come after me for the deficiency? I know the 2nd has no intention of foreclosing because we are in the weird circumstance in which we owe nearly twice as much to the 2nd as we do the 1st! So it makes sense that they would charge off the loan but I get conflicting answers as to whether or not that means the loan is still "secured" or "unsecured"??
To bguia,
When you're in bankruptcy filing, the lender will not be able to do anything with your loan account. I don't think he can transfer it to any other bank. You should contact your bankruptcy attorney and discuss the matter.
To Guest,
If the second lender has charged off the account, then your debt is unsecured now. It is the collection agency who will contact you for the balance dues.
When you're in bankruptcy filing, the lender will not be able to do anything with your loan account. I don't think he can transfer it to any other bank. You should contact your bankruptcy attorney and discuss the matter.
To Guest,
If the second lender has charged off the account, then your debt is unsecured now. It is the collection agency who will contact you for the balance dues.
Hi Jesssic,
my husband is a VA with many problems, lung & throat cancer, kidney failure. we have a first & second loan, $140000 the other $22,000. He would like to move back home to Oregon. we are stuck in this home in Florida with no hope. Any suggestions. his time is passing fast! :!:
my husband is a VA with many problems, lung & throat cancer, kidney failure. we have a first & second loan, $140000 the other $22,000. He would like to move back home to Oregon. we are stuck in this home in Florida with no hope. Any suggestions. his time is passing fast! :!:
Had a 1st and 2nd with wells fargo. House was in forclosure and we sold our house and paid off first mortgage. We were told second mortgage would be "charged off". Now second mortgage has been turned over to foreclosure. Is there a way to get the lien removed and workout payment with mortgage company or can they foreclose? The new owners have a mortgage on the property also.
hi martie,
if you want to get rid of the property, then you can apply for deed in lieu of foreclosure. this will not only help you in getting rid of the property but you won't be liable for the deficient balance even. however, whether or not you would get a deed in lieu of foreclosure will depend upon the discretion of the lender.
hi rscbur,
you should first contact the lender and check out whether or not the lender would foreclose the property or charge it off. mostly, in such a situation, the lender would charge off the loan as the owners of the property has been changed.
thanks,
jerry
if you want to get rid of the property, then you can apply for deed in lieu of foreclosure. this will not only help you in getting rid of the property but you won't be liable for the deficient balance even. however, whether or not you would get a deed in lieu of foreclosure will depend upon the discretion of the lender.
hi rscbur,
you should first contact the lender and check out whether or not the lender would foreclose the property or charge it off. mostly, in such a situation, the lender would charge off the loan as the owners of the property has been changed.
thanks,
jerry
Jerry...the problem is they will not release the title. They have not made the second "primary" and have put it in forecloser with no sale date.
You need to consult an attorney immediately and take his opinion in this regard asap. He would guide you what you need to do in this matter.
Situation: Filed BK7 and 2nd mort discharged. Did not reaffirm mortgage. Bank transfers mort to GT. Mort is upside down by more than 100k. Have continued paying for 1 year and now decided to stop. If 2nd mort forecloses, they may spend more than they can collect. What actions can they do?
Hi bgula,
The second mortgage lender has the rights to foreclose the property though it has been discharged in the bankruptcy. However, as you haven't reaffirmed the mortgage, the lender won't be able to come after you for the deficient balance resulting from the property sale.
The second mortgage lender has the rights to foreclose the property though it has been discharged in the bankruptcy. However, as you haven't reaffirmed the mortgage, the lender won't be able to come after you for the deficient balance resulting from the property sale.
okay we bought a home for 160k back in 2006 well this past year we had trouble and didn't realized we were behind until it got too late. well when we did the loan modification for the 1st we thought the 2nd was included - the 1st told my husband don't worry about your 2nd (30k) so he assume it was all together well last week i get a call saying you need to pay your 2nd off - we will go down to 10k well it took us a while to save 10k so i don't want the loan modification to come back and say sorry you are not eligible we need 15K NOW - so can i put off the collection department for a couple of months until i know that the first (130k) mortgage will go thru the loan modification - we want to keep our house - we live in Louisiana - just seems fishy cuz they said if we don't pay by the end of august then they can't work with us??? please help me before i give all my money away to the wrong mortgage loan or tell me who i can call !! thanks
Hi rm!
Welcome to forums!
You should contact the second mortgage lender and check out what you can do as you're facing hardship in paying it. You can apply for a modification of the second loan as well. However, it will be completely the lender's discretion whether or not he would consider your request and modify the loan. If you're unable to negotiate with the lender, then there are chances that the lender might charge off the account and assign it to a collection agency.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You should contact the second mortgage lender and check out what you can do as you're facing hardship in paying it. You can apply for a modification of the second loan as well. However, it will be completely the lender's discretion whether or not he would consider your request and modify the loan. If you're unable to negotiate with the lender, then there are chances that the lender might charge off the account and assign it to a collection agency.
Feel free to ask if you've further queries.
Sussane
I have and 80/20 loan with two different mortgage companies. I am currently trying to do a modification on the 1st loan, but i haven't paid the 2nd mortgage for over a year. What can I do if I decide to do a short sale? Is it too late? Especially if I haven't paid the 2nd mortgage in over a year. :?
Hi anonymous,
You can contact your first lender and apply for a short sale. It will help you in getting rid of the property. However, you would be responsible for paying the balance amount resulting from the sale of the property to the first lender. The second lender will also be able to come after you for the dues or he may charge off the account and assign it to a collection agency.
You can contact your first lender and apply for a short sale. It will help you in getting rid of the property. However, you would be responsible for paying the balance amount resulting from the sale of the property to the first lender. The second lender will also be able to come after you for the dues or he may charge off the account and assign it to a collection agency.
I filed bankrupty chapter 7 last year, it was dicharged July 2009. I included my home as well, but kept making payments. My first is at GMAC 243K, which I have paid on time and just this month I ceased paying on my second at Golden One, my balance is 74,000 at 8%. My house is worth about 180-185 in today's market. I have tried to get a loan modification from Golden One but they will not budge, my house payment is 2500 mo, and I am tired of working two jobs to keep up with it, especially as the home values seem to be continually declining. What recourse does golden one have? Can they still foreclose? They cannot send me to collections as it was included in the BK.
Hi cutesunbum,
Though the mortgage and the property were included in bankruptcy filing, the lender still holds the lien on your property. Thus, the second lender has the rights to foreclose the property. However, if they foreclose the property, they will be have to pay off the balance amount of the first mortgage lender as well.
Thanks
Though the mortgage and the property were included in bankruptcy filing, the lender still holds the lien on your property. Thus, the second lender has the rights to foreclose the property. However, if they foreclose the property, they will be have to pay off the balance amount of the first mortgage lender as well.
Thanks