Compare Mortgage Quotes

Refinance Rates for Today

Please enable JavaScript for the best experience.

In the mean time, check out our refinance rates!

Company Loan Type APR Est. Pmt.

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?
have you spoken with your lender, silverfox? they don't want you to lose your home, either, and i'd have to think they'll be willing to work with you as best they can. maybe they can work out a solution with you, but you need to converse with them first.
Posted on: 12th Feb, 2010 08:38 pm
what is the statute of limitation on your second mortgage
Posted on: 20th Feb, 2010 04:00 pm
The statute of limitations varies from state to state. You need to contact an attorney based in your state and get to know whether or not there is a statute of limitations on your second mortgage.
Posted on: 22nd Feb, 2010 03:55 am
a second mortgage is a mortgage. i can't imagine that a statute of limitations would apply in that case. if that mortgagee is not getting paid, they'd have the right to begin a foreclosure action. this is only my gut reaction, but i'd say that if a home was sold at auction and the second mortgage unpaid, that lender could send the account to collections. at that point, i think, the statute of limitations might kick in and be relevant. until that time, however, this is a secured debt; i can't quite figure out how sol would apply at all.
Posted on: 22nd Feb, 2010 09:06 am
I have a first and second mortgage on my house. I'm paying more than the house is worth. I'm struggling each month as my income decreases. I tried to get a loan modification with CitiMortgage. I was working on it for 8 months. They said I was approved and gave me my new interest rate and new payment. They told me they had dropped my rate from 8.75% to 2%. I was relieved. They said they would send the paperwork. I called back and they said I wasn't approved because my mortgage had to be 49% of my income in order to get a modification. My name is on the mortgage loan and my wife's isn't yet they're counting her income when they do the formula. Why is the first time I was approved and the second time I'm not? Nothing changed as far as income. CitiMortgage is horrible to work with. They don't return phone calls and they never sent me any paperwork saying I was denied. How can I save my house when the banks won't help. Since the government starting holding the accountable, they not lending any money or helping like the President promised.
Posted on: 28th Feb, 2010 08:51 pm
Hello,
I live in Florida and I have a 1st and 2nd mortgage payment.
My wife lost her job in July and I aplied to a Loan Modification in Sep.
After 5 months, the bank called me and said I was declined because my payment are current!!!!!!
The problem is that I spent half of my saving trying to keep my payment and now the bank said I should apply for a different program that helps only customers with current payment.
Honestly I don't know what to do!
My house is under-water (330K mortgages vs 250K market value today)
Please advise.
Posted on: 01st Mar, 2010 09:06 am
To Enrico,

Your wife is not on the mortgage, then they should not consider her income while qualifying you for the modification. I would suggest you to speak to your lender and clarify the whole issue. You may also try to refile your application for modification.

To Gonzalo,

As your lender has suggested you to apply for a different program that helps only customers with current payment, you should go for it. Contact your lender and ask him regarding the details of that program and check out how it will help you. If you feel that the program would help you in making your payments affordable then you can enroll for it.
Posted on: 02nd Mar, 2010 01:49 am
I have first mortgage loan of $157,000 and HELOC of $107000. My house valus approx. 135,000. I am paying interest only on the second and will never be able to pay it off. I need an advise what to do to modify first loan and settle on the second.
Posted on: 04th Mar, 2010 11:45 am
You should write a hardship letter to your first lender and apply for loan modification. The lender would take a look at your financial situation and let you know whether or not you would qualify for it.

As far as your second lender is concerned, you will have to negotiate with him for a settlement. You will have to inform the lender about your financial situation. It will be the discretion of the lender whether or not you would get a settlement.
Posted on: 05th Mar, 2010 01:13 am
I have a 1st and 2nd mortgage. The house is worth more than the first mortgage but less than both mortgages combined. $175k first, $150K second market value about $250k. Just lost my job and can't make 2nd mortgage payments. My wife works and can make the 1st mortgage. What are our options we are not delinquent on any payments (yet ) ? I'd rather not go BK.
Posted on: 07th Mar, 2010 03:10 pm
you can ask your second mortgage lender to modify your loan so that it become affordable for you to pay off your mortgage payments. thus, you won't be delinquent on your dues and would be able to save your property.
Posted on: 08th Mar, 2010 02:28 am
I realize I can talk with the 2nd mortgage lender but everything I read and hear is that the banks ( particularily BofA) are being very difficult. Is there some process or legal angle I can use for leverage in the negotiation ?
Posted on: 08th Mar, 2010 05:47 pm
Hi saratoga,

You can involve an attorney while negotiating with your lender. However, it is a better option to negotiate with your lender yourself. If you can explain your hardship to your lender and convince him about your difficult financial situation, he would be ready to give you a modification.

Take care.
Posted on: 09th Mar, 2010 02:00 am
I have two mortgages on my home one for 210,000 and the 2nd for 50,000. I paid both of them faithfully for 15 months. I got out of the military and had to wait for 18 months to get my Va disability through the Army red tape. Therefore I was unemployed for 18 months doing odd jobs. I kept up with my first mostgage and the 2nd mortgage was sold to in unknown company. I tried on many occasion to contact the mortgage but they went BK and none of the numbers worked. Since that time I had know one to pay, because I did not know where to send the money. Therefore its been 3 years and 8 months since I heard anything from my second mortgager. I recieved a certified letter saying that we owe them 24, 000 dollars by the end of the month or they will foreclose and seek legal action. They also stated that they would not accept no payment plan but only accept the 24,000. What are my options. I just recently rejoin the military in will report on the first of April.
Posted on: 14th Mar, 2010 03:03 pm
I have two mortgages on my home one for 210,000 and the 2nd for 50,000. I paid both of them faithfully for 15 months. I got out of the military and had to wait for 18 months to get my Va disability through the Army red tape. Therefore I was unemployed for 18 months doing odd jobs. I kept up with my first mostgage and the 2nd mortgage was sold to in unknown company. I tried on many occasion to contact the mortgage but they went BK and none of the numbers worked. Since that time I had know one to pay, because I did not know where to send the money. Therefore its been 3 years and 8 months since I heard anything from my second mortgager. I recieved a certified letter saying that we owe them 24, 000 dollars by the end of the month or they will foreclose and seek legal action. They also stated that they would not accept no payment plan but only accept the 24,000. What are my options. I just recently rejoin the military in will report on the first of April.
Posted on: 14th Mar, 2010 03:03 pm
Page loaded in 0.149 seconds.