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Stop paying second mortgage - What happens next?

Author: Jessica Bennet
Community Mentor
Ask Jessica
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:



  • 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:


    1. 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).



    2. 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.
Posted on: 17th Sep, 2008 12:30 am
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?
I have 1st mortgage ($280,000) with National City Mortgage, 2nd ($202,000) with National City Bank and 3rd ($56,000.) with National City Bank. The 1st mortgage is a baloon mortgage that adjusts in May of 2010.

I pay about $5,300.00 per month on these mortgages combined. The house is only worth $400,000. so I am about $140,000.00 underwater.

I tried to modify with bank several times with no modificatioon. This month I hired a modification company (lawyer based). I think the lender inflated my apprasals to ring up 3 mortgages on the property, and now that the value has dropped so drastically, they are not willing to share in the negative equity.

The monthly payments are a hardship, plus I have two in College. My Finances are getting away from me and I need to fix these mortgagesto survive. Is there any chance they would extinguish the third mortgage all together, then roll my 1st and 2nd together at a fixed rate - I could make it if they would do this. I'm told that giving me a 3rd mortgage is very unusua.
Posted on: 04th Jan, 2010 05:48 pm
Hi Woody,

I doubt whether or not your lender will be ready to forgive the whole of your 3rd mortgage. Depending upon your financial situation, your lender can reduce it to some extent. Moreover, as your property is underwater, I don't think the lenders would be able to help you in rolling over your 1st and 2nd mortgage into a fixed rate mortgage. It's better if you could convince your lenders for modification and get better terms to pay off the loan.
Posted on: 04th Jan, 2010 11:22 pm
My 1st is about 190k my second is about 37k my homes value if I sold today probly around 270k-280k allthough its not impossible that the home would only sell for 230 or so. So whereas im not upsidedown but pretty close to even. PROBLEM income has decreased so much that I can not afford the extra 500 a month on the second, whereas I do pay my first which has a okay rate of 6.125 (stated income self employed) my second is @ 9.25 which is high. im only 2 months behind I was very ill an unable to work one whole month. They want me to become current and file a wavier however I want a modification and I have been told but others that in order to modify you have to be in a situation where we cant pay or havent paid. alltough I called them prior to not being able to pay and they pretty much blew me off. Now they call everyday, i dont answer because I CANT PAY.... what can they do? they have not sent letters only phone calls.
Posted on: 07th Jan, 2010 03:18 pm
I own a one family house it no longer has equity in it because we borrowed on it when the house market was high. We now have a 2nd mortgage and charge cards that can not be paid..can forclose on my house even though Im paying on 1st mortgage and stop paying on 2nd and credit cards and going chapter 13 or chapter 7 my husband works but we can not afford even our every day bills like ps&g and food what do we do we cant sell house we have no where to go....
Posted on: 07th Jan, 2010 09:18 pm
waiting for answer from you fast....................
Posted on: 07th Jan, 2010 09:19 pm
Hi hilary!

Welcome to forums!

I won't suggest you to ignore the lender's phone calls. You should inform them about your hardship once again and request for a modification. Check out what your lender has to say in this regard. Depending upon your present financial situation, your lender may agree for a loan modification.

Feel free to ask if you've further queries.

Sussane
Posted on: 07th Jan, 2010 11:04 pm
hilary, i agree with sussane...as much as we dislike hearing from our creditors, who ask the same questions each time they call (despite what we've already told them), it is a necessity. if you don't speak with them, they'll simply think you are irresponsible and they'll take appropriate action to try to collect your debt. you don't want that, so pick up the phone once in a while.

joseph march, you seem frantic, and that's understandable. you'll need to discuss all this with your creditors. with credit card companies, there are numerous programs they offer to assist borrowers with trying to pay back at least something every month; and with your mortgage lender, you can attempt to seek a modification of that loan. i know it's said that modifications don't happen, but some of them are getting done, and the industry has sworn to increase its volume of modifications. so don't sit back (and i don't accuse you of that), be active in speaking with your creditors, and see what they can come up with that may benefit you.
Posted on: 08th Jan, 2010 07:07 am
hi
i had a 1st and a 2nd and short sold my house july 09. long story short, my agent mislead us by telling me both banks accepted the short sale. just found out in sept that the second sold the mortgage to select portfolio services. it's not in collections, but it shows on my credit report as a send mortgage that is 120 days late. i refuse to pay $53,000 on a second mortgage when the house has already been sold. my credit debt is only $3000 and credit scores are still good. bk is not an option for me. what can i do? thank you
Posted on: 10th Jan, 2010 01:08 pm
I have an 80/20 a condo which no bank will touch and no one will buy also I paid my 80 is $167,000 my Heloc is 41,000 my place is worth 70000. My 2nd mortgage is tied to the first mortgage with the same bank BofA how would that work if I stopped paying the 2nd mortgage
Posted on: 10th Jan, 2010 06:24 pm
Hi GK,

Though the property is sold off, the second lender has not received his dues. Thus, he has the rights to report the second loan as delinquent. You'll have to contact your second lender and try to clear off the dues. If you cannot pay off the dues at one go, you may ask for a payment plan to pay it off.

Hi Guest,

If you stop paying the second mortgage, the lender will foreclose the property. In my opinion, you should get in touch with your lender and apply for a loan modification. This will help you get a new payment plan to pay off the dues at affordable rates.
Posted on: 11th Jan, 2010 01:49 am
Hi thanks for the response. The second accepted $2500 to release the lien and not the debt. Wilshire who was the 2nd, sold it to a collection agency who is now acting like they are the lender because it shows on my credit report like a 2nd mortg that is 120 days late. I short sold because my income reduced drastically, so why would I pay a 2nd mortg especially if the house has been sold. Also, these banks are getting their money don't worry. A mortgage insurance co contacted me to ask me a bunch of questions, because Wilshire is filing a mortgage insurance claim for the $53,000. Even though they sold it off to collections and got some money. Talk about double dipping. I will have to settle for a small amount or just let it go. Thanks.
Posted on: 11th Jan, 2010 08:54 am
Hi GK!

Welcome to forums!

If the lender has sold off the loan to a collection, then they have the rights to collect the dues from you. Though you've sold off the property, the loan still remains and you are liable to pay it off. I would suggest you to contact the collection agency and negotiate with them. May be they would give you a payment plan to pay off the debt.

Feel free to ask if you've further queries.

Sussane
Posted on: 11th Jan, 2010 09:54 pm
I have 1st with GMAC Mortgage currently I am doing Loan modification .
My 2nd is with Wells Fargo Bank I am not paying them since last year2009
I have no information who to call .Ilike to find out what to due?

Thank You
Posted on: 15th Jan, 2010 01:32 pm
Hi Anna,

You'll have to call Wells Fargo, i.e. your second lender and check out the amount that you owe them. They will let you know whether or not they have charged off the loan.

Thanks
Posted on: 15th Jan, 2010 11:21 pm
What are the statute of limitations on a second mortgage?
Posted on: 20th Jan, 2010 10:05 pm
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