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My second mortgage became a charge off - What is that?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 07th Dec, 2006 03:49pm
If you haven't paid your mortgage for 6 months or you've been through a foreclosure or short sale wherein you couldn't pay off the second loan after getting rid of the first, your lender is likely to issue a second mortgage charge-off.

What is second mortgage charge-off all about?


If your second mtg lender intends to charge off the loan, it means he's declaring the debt as uncollectible. So, the lender will no longer collect payments from you. But this doesn't mean that you don't owe the money. The lender reports the debt as a loss when he files a Profit and Loss Statement (for his company) with the Internal Revenue Service. He sells off or assigns the debt to a collection agency that'll collect the payments on his behalf. So, your debt hasn't been canceled or forgiven.

When a second loan is charged off after a foreclosure/short sale on the property, the mortgage is considered as an unsecured debt since the collateral has been sold off already.

What happens after a second loan charge-off?


When a second loan is charged off and sold to a collection agency (CA), it's essential that you negotiate an alternative payment plan with the CA. In case you can't meet up with the monthly loan payments, you may settle the debt for an amount less than what you owe to the CA. Otherwise, you may face any of the consequences explained below:
  • CA may sue you: If you don't make any payment towards the mortgage, the CA may file a lawsuit against you during the SOL (Statute of Limitation) period. Once you decide to settle the debt, make sure you get a settlement agreement in writing from the CA.

  • Property retains the 2nd lien: The charge-off does not remove the second lien from your property unless you pay it off.

However, when the second mtg debt is settled, you may have to pay tax on the balance forgiven by the lender. This is because the balance forgiven or canceled debt is considered as your income. But you can avoid paying the tax provided you qualify for mortgage debt forgiveness.

Will I get 1099-C Form after a second loan charge-off?


Since a charge-off doesn't imply cancellation of debt, therefore the lender won't send you a 1099-C Form. Such a form is sent only when a lender cancels your debt and reports it to the IRS as a tax loss.

Can I remove second loan charge-off from credit report?


You can have the charge-off removed from your report only when you settle or pay off the account in full. Unless you make payments towards the account, the negative item will reflect on your credit report for 7 years. After you settle or pay the charged-off account in full, request the collection agency to update the account status as "Settled charge-off" or "Paid in full" respectively. However, a "Paid in full" is certainly better than a "Settled charge-off" status on your credit report. Know more on how to remove charge-off from credit report.

When a second mortgage is charged off, it brings down your credit score by 50 points or more depending upon the other negative items you may have on your report. The best way to get rid of this negative item is to pay down the debt asap and negotiate with the CA to update your account status accordingly.
Posted on: 07th Dec, 2006 03:49 pm
Our 2nd mortgage with beneficial was an original 15,000.00 loan. It has escalated to 32,000.00. They are going to charge off this month. My husband is disabled & 1 child disabled. The loan is only in his name. But my name is on the deed. I understand a 1099 we will receive. What happens to the charge off. with a lien against the home. Will it come off in 7 years? Thanks, Melissa
We are going through a modification process for our home. The value has gone significantly in our home. Once it was worth 600,000 now its value is 217,000. The modification office advised us the would best way to go is to charge off the 2nd and the 3rd. He mentioned certain things that have been approved in California that would forgive the debt. Anyone know about it?
Posted on: 01st Sep, 2009 03:26 pm
Gotta disagree w/ Caron above. You need to do more than " The only thing is that you need to be confident and have patience." You need to negotiate to pay back what you owe or be ready to deal with a possible lien and/or bad credit rating. Confidence and patience may help but definitely not the only things you need. Money helps. Good negotiating helps.
Posted on: 22nd Sep, 2009 09:41 am
My 2nd mortgage was charged off after 150 days while I was in a loan modification process. No notice was provided, as I thought it was 180 days. I spoke with the bank and was told that they are regulated to charge off loans at 150 days. What's the statutes? What gov't agency regulates banks process to charge off loans? Bank rep was unhelpful in providing this information. Help!!
Posted on: 25th Sep, 2009 12:50 pm
We modified first mortgage but 2nd mortgage did a charge off
Posted on: 25th Sep, 2009 04:45 pm
The the lender will send that for collection and you will eb laible to pay the same

But you cna negotiate with the collection agency and work out a payment plan
Posted on: 25th Sep, 2009 11:12 pm
So I am modifiing the 1st. The second charged off. I am keeping the property. So the 2nd lien will remain on the property forever? or until I settle the debt. What if I decide to sell after 10 years? Is the lein still there? or will it eventually drop off?
Posted on: 04th Nov, 2009 09:37 am
Hi,

The second lien will remain on your credit even though the debt has been charged off. You're still responsible for the loan and the collection agency will come after you to recover it. You can negotiate with the collection agency to settle the debt and then get the lien removed from your property. The lien stays on your house until the statute of limitation (SOL) for the debt expires. The time limit for the SOL depends on your state laws.
Posted on: 05th Nov, 2009 04:21 am
during negotiation for a loan mod on my home, which has a 1st and 2nd, the second became "charge off"- the loan mod is comming to a end and depend on what the investor decide to do I may have to short sale my property. what is going to happen to the 2nd.
Another question: if I would file BK, would the second be included in it, and can I still save my house?
Posted on: 14th Nov, 2009 08:05 am
hi sf,

if the second mortgage has been charged off and sold to a collection agency, your original second lender does not hold the mortgage anymore. you will have to do the negotiations with the collection agency. you will owe the second mortgage debt, even after you short sell the property. the collection agency will come after you for the balance of the loan.

you can check out the option of filing chapter 13 bankruptcy with a bankruptcy attorney. it will help you reorganize your debts and keep your home. there is a concept of lien stripping in chapter 13, where the second mortgage can be discharged, if the property value is not enough to satisfy the second mortgage. bankruptcy laws vary in different situations, which is why you need to consult a bankruptcy attorney to know about it.
Posted on: 18th Nov, 2009 01:00 am
My second mortgage became a charge off, however th CA is trying to collect th full amount of the loan. The loan originated in 2000 with a pay off date of 2010 and regular payments were made from 2000 thru 2007. Do I owe anything on this loan? I feel that I owe nothing because I have already paid more than the original amount of the loan and a substantial amount of interest.
Posted on: 25th Nov, 2009 01:45 pm
I had a 2nd mortgage with a balance over $100,000 charged off last month. I negotiated a lesser amount to pay if I pay it in full. If I do this, will this debt be satisfied?
Posted on: 07th Dec, 2009 08:08 am
To steamed,

You need to ask the collection agency how much you still owe on the second mortgage. If you have made payments from 2000 through 2007, there seems to be no reason why you would still owe the full amount of the loan. Have you been making interest-only payments? Did you stop payments in 2008 and 2009? If you did, chances are that the missed payments and accumulated interest have been added to the principal balance. But anyway, you must ask for a detailed explanation from the collection agency regarding how much you still owe them. They are bound to provide you with this information.

To sm,

If you can convince the collection agency to accept a short pay off and pay it in full, the debt will be satisfied. But when you make the payment, make sure you get it in writing from them that the debt has been paid in full and you no longer owe them anything. When you negotiate, ask them to report the debt to credit bureaus as "paid as agreed".
Posted on: 08th Dec, 2009 06:01 am
My question is that i recently modified my loan and the bank never told me what was going to happen to the 2nd loan. The modification was just done like 2 months ago and i just found out that i have a negative on my loan. i found out that my 2nd loan is showing up as a charge off $97,427.00-written off. They are telling me that i need to arrange payments but i can not afford it and if i dont do it my house will have a lien for forclosure but before they will try and do wage garnishment. the house has no equity and i have been told that i dont need to make payemnts from the bank where i have the first loan. i was told that i need to do a 1099 but i have not received this and the person i hired to help with the mod keeps saying that i dont need to need to make payemnts. can anyone help? I just dont know what to do if i am being misled or what will really happen if i dont make payments. the collection agency is saying that they can settle but no bank will loan me anymore money when i have that negative :(
thank you
ms desperate
Posted on: 11th Dec, 2009 01:45 pm
Hi anonymous,

The second mortgage has been charged off, but this never means that the debt has been forgiven. The lender can sell off this debt to a collection agency, which will collect the debt from you. Then, you will have to do a settlement or set up a payment plan with the agency. If the first lender has accepted a loan modification, it is good for you. But the lien due to the second mortgage still remains on your property and the house can be foreclosed to satisfy the lien. I think you can file bankruptcy Chapter 7 and have the second mortgage discharged. If you can afford the first mortgage, you can reaffirm it and continue making the monthly payments.
Posted on: 15th Dec, 2009 11:42 pm
Most likely the CA will not report it to the credit bereau
But you will have a lien through the county
a good rule of thumb is expect to be able to settle for about 25% OF YOUR BALANCE at the high end less ,
meaning if 25% goes over 20 25,000 you can hit em for about 17 -18%
or if you can play a good game with them stating you are at the point keeping your home is no longer in the future unless they are willing to accept a certain number you are comfortable coming up with and then you can start paying the first even if you already have done so
My modification just went through today
from 2034.92 to 1400 on a trial period
I would not accept anything until I had some good feeling about the second
The modification was done through naca.com and I have went ove a year without making a payment on both mortgages
and have a balance left on the second of 90,000 after speaking with the collection with the second they made a first offer of 30,000 and even said that wasnt a firm number
and asked for 100 a month until I countered .
I am not going to pay anything right now , but i will keep in touch with them
i am going to present an offer of 16,800 cash before three months and my modification trial becomes permanent
if the modification does not finalize I will most likely give the house back .
If i can whap off 70,000 debt from the home It will be close to value And I feel comfortable about keeping the home

<<<<<<<
to add fyi
i have read where people use these threads to vent as the govenment stole money from them to give to us , everyone has benefited from this crisis accept for the people that purchased homes in the last 5 even ten years , we are the ones stuck with homes that just arent worth what weve got in em
guess we all should went against our economics teachers and bought ferraris instead of Nice homes
Posted on: 16th Dec, 2009 08:48 pm
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