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.
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:
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.
- 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.
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.
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
Hi Kim,
" hey want to lower the interest rate from 6% on 1st w/ 7 yr. ARM to 47/8% on 30 year. Also as part of terms would be a debt forgiveness on 1st and write off of our 2nd."
If the lender forgives certain portion of the first or the second mortgage, it will be considered as your taxable income. But you can claim exemption from paying taxes on this forgiven debt amount, if you have used the property as your primary residence. You are not going to do a foreclosure or short sale or deed in lieu. So, your credit scores will not be hugely impacted. However, you should discuss with your lender about how they are going to report this to the credit bureaus. If the both the first and the second mortgages are with the same lender and he has agreed to write off the second, you will not be required to repay it. However, whatever the lender is promising, he must give it to you in writing.
" hey want to lower the interest rate from 6% on 1st w/ 7 yr. ARM to 47/8% on 30 year. Also as part of terms would be a debt forgiveness on 1st and write off of our 2nd."
If the lender forgives certain portion of the first or the second mortgage, it will be considered as your taxable income. But you can claim exemption from paying taxes on this forgiven debt amount, if you have used the property as your primary residence. You are not going to do a foreclosure or short sale or deed in lieu. So, your credit scores will not be hugely impacted. However, you should discuss with your lender about how they are going to report this to the credit bureaus. If the both the first and the second mortgages are with the same lender and he has agreed to write off the second, you will not be required to repay it. However, whatever the lender is promising, he must give it to you in writing.
To enterprise,
It sounds strange that you took out a second loan, but it is not registered against your house with the land registry! Lenders would not do such mistake because when they give you a loan, they do want you to pay in back in full. In you case, I not sure why it is not properly registered. I think you should consult an attorney and get the paperwork reviewed by him. He can tell you if the second loan agreement is legally void. By the way, have you contacted the second lender since the house was sold? Do they want to collect the second mortgage balance or have they forgiven the debt amount?
To anonymous,
A Home Equity Line of Credit is secured by the value of the property. The lender has the right to foreclose on your home if you default on the loan. If the borrower is deceased, the lender will sell off the property to recover the outstanding loan balance, even though the property has been transferred to another person. If that person wants to keep the property, he will have to continue making the payments towards the loan or will have to pay it off in full to satisfy the lien.
It sounds strange that you took out a second loan, but it is not registered against your house with the land registry! Lenders would not do such mistake because when they give you a loan, they do want you to pay in back in full. In you case, I not sure why it is not properly registered. I think you should consult an attorney and get the paperwork reviewed by him. He can tell you if the second loan agreement is legally void. By the way, have you contacted the second lender since the house was sold? Do they want to collect the second mortgage balance or have they forgiven the debt amount?
To anonymous,
A Home Equity Line of Credit is secured by the value of the property. The lender has the right to foreclose on your home if you default on the loan. If the borrower is deceased, the lender will sell off the property to recover the outstanding loan balance, even though the property has been transferred to another person. If that person wants to keep the property, he will have to continue making the payments towards the loan or will have to pay it off in full to satisfy the lien.
I got behind on my second with Chase (HELOC) but am current on my first with BOA. I just found otu my HELOC was charged off and when I called to see what I could work out I was told that I could settle (for about .50 on the dollar) or they would foreclose. No payment plan was offered - simply settle or foreclose. On top of that, I can never get anyone live on the phone to negotiate, discuss, etc..
Does anyone have any advice?
Does anyone have any advice?
can a collection agency who holds a 2nd (charged off by bank) "foreclose" on a home when the 1st mortgage is current?
thank you.
thank you.
Hi Mitch,
Chase charged off the HELOC because they considered the debt irrecoverable. Have they sold it off to a third party collection agency? It is unlikely that your house would be foreclosed for the second mortgage because if that was the case, Chase would not have charged it off. I believe you can settle the debt. The collection agency or the mortgage company, whoever holds the debt after the charge-off, will be willing to help you set up a repayment plan. You just have to be patient and need negotiate with them.
Hi Mud,
The collection agency is unlikely to foreclose your property for the charged off second mortgage. If it was worth while for the second lender to foreclose the property, he would never have charged off the debt. However, the collection agency can sue you if you do not make payments to them and may get judgment against you to garnish your wages or to come after your assets, savings accounts, etc.
Thanks,
Jerry
Chase charged off the HELOC because they considered the debt irrecoverable. Have they sold it off to a third party collection agency? It is unlikely that your house would be foreclosed for the second mortgage because if that was the case, Chase would not have charged it off. I believe you can settle the debt. The collection agency or the mortgage company, whoever holds the debt after the charge-off, will be willing to help you set up a repayment plan. You just have to be patient and need negotiate with them.
Hi Mud,
The collection agency is unlikely to foreclose your property for the charged off second mortgage. If it was worth while for the second lender to foreclose the property, he would never have charged off the debt. However, the collection agency can sue you if you do not make payments to them and may get judgment against you to garnish your wages or to come after your assets, savings accounts, etc.
Thanks,
Jerry
My second mortgage was charged off by my mortgage company, without me knowing it. I recieved a call tonight from a company saying that they have the rights to the loan. I never recieved a 1099 or even a letter. This company says I am behind 18 months, I had my mortgage re-modified last year which i throught covered both loans.My question is do I have to pay this collection agency, also can they take my house. or what happens if they put a lein on my property. I have to wait until in the morning to call my mortgage company. Also I have already filed my taxes for the year but I did not report the write off because i did not know about it. Am i in troublr with the IRS now. please someone help, I am very confused as to what i need to do.
Hi Tiffany,
Are you sure the lender has charged off the debt and sold it to a collection agency? First, you should contact your second mortgage lender and see if they have really sent the mortgage debt for collections. You should also ask the collection agency to validate the claim that they now have legal rights to collect the debt.
The collection agency may try and get a judgment against you to garnish your wages. But they are unlikely to foreclose your property to satisfy the lien. If it were possible to recover the second mortgage lien through foreclosure of the property, the lender would not have charged it off.
The mortgage has been sent to collections. It has not been discharged and you still owe it. So, you do not have to report it as a write off. But if the lender forgives this debt, you will have to report this on your taxes as your income.
Are you sure the lender has charged off the debt and sold it to a collection agency? First, you should contact your second mortgage lender and see if they have really sent the mortgage debt for collections. You should also ask the collection agency to validate the claim that they now have legal rights to collect the debt.
The collection agency may try and get a judgment against you to garnish your wages. But they are unlikely to foreclose your property to satisfy the lien. If it were possible to recover the second mortgage lien through foreclosure of the property, the lender would not have charged it off.
The mortgage has been sent to collections. It has not been discharged and you still owe it. So, you do not have to report it as a write off. But if the lender forgives this debt, you will have to report this on your taxes as your income.
Unfortunatly I was part of the forclosure set this year, I recently pulled a credit report and noticed that the comapny holding the 2nd mortgage on my house charged off as bad debt and apparently turned the loan over to a collection agency, ok so before you start I get the fact they hired this company to collect and its a book keeping thing and that yes I am fully aware I owe the money and when I get to work again I will, however what I want to know is can bot the original mortgage company and the collector report to the credit burea? can I have one or the other removed from my credit report
To Gina,
Both the original mortgage company and the collection agency cannot report the same account to the credit bureaus. If the account has been charged off, the original creditor will report it to the bureaus. But once you start making payments to the collection agency, they need to report it to the bureaus. When you pay off the debt in full or settle the debt for a lesser amount, the agency should report it as "paid as agreed" or "settled".
Both the original mortgage company and the collection agency cannot report the same account to the credit bureaus. If the account has been charged off, the original creditor will report it to the bureaus. But once you start making payments to the collection agency, they need to report it to the bureaus. When you pay off the debt in full or settle the debt for a lesser amount, the agency should report it as "paid as agreed" or "settled".
my mortgage company recently did a charge off on the first mortgage and not the second mortgage? why was this done? what recourse do i have?
i have a mortgage as well as secured loan ds are paying my mortgage interst and i cannot afford my payments on loan as i am on income support my aerres are mounting up can you help me
Hi anonymous,
The mortgage company charged off the first mortgage because they probably think they cannot recover the mortgage balance from you. They want to report the loan as their loss for tax reasons. But since they have charged off the loan, it does not mean they will not come after you for the debt. They may send it to collections and a collection agency may come after you to collect the outstanding debt. You can negotiate for a settlement or set up a repayment plan in order to pay off the remaining balance.
Hi nazia,
If you cannot make the monthly mortgage payments, you can request the lender to do a loan modification. This will help you get a lower monthly payment so you can get current on the loan. The lender may also agree to reduce the principal balance to some extent. You can write a hardship letter to your lender to know if you qualify for the modification.
Thanks,
Jerry
The mortgage company charged off the first mortgage because they probably think they cannot recover the mortgage balance from you. They want to report the loan as their loss for tax reasons. But since they have charged off the loan, it does not mean they will not come after you for the debt. They may send it to collections and a collection agency may come after you to collect the outstanding debt. You can negotiate for a settlement or set up a repayment plan in order to pay off the remaining balance.
Hi nazia,
If you cannot make the monthly mortgage payments, you can request the lender to do a loan modification. This will help you get a lower monthly payment so you can get current on the loan. The lender may also agree to reduce the principal balance to some extent. You can write a hardship letter to your lender to know if you qualify for the modification.
Thanks,
Jerry
My 2nd mortgagee charge off my loan, but now I got a judment from it. They will bring me to the court. What should I do now?
Hi KimChi,
Has the judgment already been entered against you? Or it is that you have just been served notice to appear in the court for the judgment? If you have been served a notice, you should appear in the court at the specific date, else a default judgment could be entered against you.
Talk to the lender and try and settle the mortgage debt out of the court. Negotiate with the lender and try and set up a repayment plan to pay off the loan.
Has the judgment already been entered against you? Or it is that you have just been served notice to appear in the court for the judgment? If you have been served a notice, you should appear in the court at the specific date, else a default judgment could be entered against you.
Talk to the lender and try and settle the mortgage debt out of the court. Negotiate with the lender and try and set up a repayment plan to pay off the loan.
My wife and I have been trying to modify our loan with JP Morgan Chase. It has been 8 months total but about 2 months since we have heard from them. We decided to call today and told us that they have charged off our mortgage and we are pretty much SOL. Now we have a 2nd mortgage with another company. Does this Charge off mean we will lose our house?