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 marriedman,
The charge-off does not necessarily mean that you will lose your house. Your lender generally charges off the loan when he feels that he cannot recover the loan from you. You've applied for the loan modification and it seems that that you've stopped making payments already. This is why your mortgage company thought they could not recover the mortgage balance from you and charged off the loan by reporting it as their loss.
Your mortgage company can still come after you to recover the loan balance. A collection agency may come after you for this debt in case it has been sold off to them. You can settle the debt with them or you can set up a repayment plan to pay off the loan. As far as the second mortgage is concerned, you need to keep making payments to the lender, else he can foreclose your house.
The charge-off does not necessarily mean that you will lose your house. Your lender generally charges off the loan when he feels that he cannot recover the loan from you. You've applied for the loan modification and it seems that that you've stopped making payments already. This is why your mortgage company thought they could not recover the mortgage balance from you and charged off the loan by reporting it as their loss.
Your mortgage company can still come after you to recover the loan balance. A collection agency may come after you for this debt in case it has been sold off to them. You can settle the debt with them or you can set up a repayment plan to pay off the loan. As far as the second mortgage is concerned, you need to keep making payments to the lender, else he can foreclose your house.
My credit is already bad after the shortsale of my condo. I have a 73K charge off from the second loan. If I make a partial settlement will it affect the amount that I settle for? say 10K vs 20K? Also once I settle can they still come after me with a judgement?
To muno,
"If I make a partial settlement will it affect the amount that I settle for?"
I'm not sure what you intend to mean by what is quoted above. But, yes, you can obviously negotiate with the second lender or the collection agency (if the debt is sold to them) and settle the debt for an amount less than what you actually owe. Once they accept your settlement offer and you make payments to them to settle the debt, they will not come after you with a judgment.
"If I make a partial settlement will it affect the amount that I settle for?"
I'm not sure what you intend to mean by what is quoted above. But, yes, you can obviously negotiate with the second lender or the collection agency (if the debt is sold to them) and settle the debt for an amount less than what you actually owe. Once they accept your settlement offer and you make payments to them to settle the debt, they will not come after you with a judgment.
Our property is in Calfornia. The 2nd mortgage lender told us because we haven't paid the loan in 6 months, that the paperwork is going to the PMI insurance carrier for a claim and that the loan will show as a charge off on our credit. We were also told by our lender that we cannot have a lien placed on the title for the amoutn because of California Law. Is this true?
Hi Christina,
Your second mortgage has been charged off, but your lender can still come after you to recover the outstanding loan amount. There are anti-deficiency laws in the state of California which do not allow your lender to pursue deficiency judgment against you on purchase money loans. Thus, if your second mortgage is a purchase money loan and you used the property as your primary residence, your lender will not be able to sue you for any deficiency.
Your second mortgage has been charged off, but your lender can still come after you to recover the outstanding loan amount. There are anti-deficiency laws in the state of California which do not allow your lender to pursue deficiency judgment against you on purchase money loans. Thus, if your second mortgage is a purchase money loan and you used the property as your primary residence, your lender will not be able to sue you for any deficiency.
what if you dont have money to pay after you sold your house as a short sale.
To Guest,
If you short sell your property the lender will come after you to recover their loss from the sale. The lender will have to get a judgment against you in order to collect the deficiency from you. They will not want to get a judgment against you unless they are sure that you have the means to pay it off.
If you short sell your property the lender will come after you to recover their loss from the sale. The lender will have to get a judgment against you in order to collect the deficiency from you. They will not want to get a judgment against you unless they are sure that you have the means to pay it off.
EMC Modified my 1st last year. The process took so long, by the time it was done, I was informed my 2nd mortgage (also through emc) had been sent out to Real Time Resolutions (collection) for servicing. I was told by emc to contact RTR for payment arrangement on the 2nd. RTR Took the $10k that I was behind in payments on my 2nd, added it to the end of the loan for a total of 108k and gave me a new loan payment and ammortization schedule. Afraid to loose my house, I agreed to this "new loan agreement at "0%" interest rate and a new payment of $430 vs/ the $856 I use to pay. I started making payments 1 year ago. I've paid on time both on my 1st and to RTR for my 2nd. Nonetheless EMC has continued to report me as 180 + days past due. RTR cllaims they cannot update my credit and EMC refuses to update it suntil the 2nd is brought current. Since my credit is being ruined anyway, should I just stop paying the collection company and continue paying my modified 1st to EMC? I owe $556k on the 1st and now $108k on the 2nd, the house is only valued at about $300k if that.
To micky,
It does not seem to make much sense to continue making payments on the charged off second mortgage, if your credit is still being ruined anyway. I'm not sure why RTR cannot update your credit since they are the ones who are servicing the second mortgage in the post charge-off period.
I think you should talk to RTR and tell them that you are not going to pay them anymore if they do not update the information on your credit report. Since the home is upside down, they will not be able to foreclose the property. As long as you stay current on your first mortgage, you are unlikely to lose the home to RTR.
It does not seem to make much sense to continue making payments on the charged off second mortgage, if your credit is still being ruined anyway. I'm not sure why RTR cannot update your credit since they are the ones who are servicing the second mortgage in the post charge-off period.
I think you should talk to RTR and tell them that you are not going to pay them anymore if they do not update the information on your credit report. Since the home is upside down, they will not be able to foreclose the property. As long as you stay current on your first mortgage, you are unlikely to lose the home to RTR.
Thats what I've been thinking of doing. Just stop paying RTR. I've just been afraid of the ramifcations of doing so. I'm sure they are going to want to get paid somehow? Can they sue me or start garnishing my wages? What would happen if I stopped paying the collection agency on my 2nd after I signed an agreement to pay them? On the agreement, RTR states that if I stop making payments they can take action under the original terms of the loan and stop their commitment to charge the lower interest rate.
Hi Micky,
If you've signed an agreement with the collection agency regarding paying off the loan, then you would liable for the terms and conditions of that agreement. The collection agency may take actions against you as per the agreement.
Thanks
If you've signed an agreement with the collection agency regarding paying off the loan, then you would liable for the terms and conditions of that agreement. The collection agency may take actions against you as per the agreement.
Thanks
The bank and i were in discussion on modifing our loan,(2nd)that is,I do have a first with a different lender,and they modified there loan with us,The bank carring our second charged off the loan with out notification at all,know my credit is ruined,do have any legal corse againts the Bank ,i was put on permanet disability,I obvious can't pay what i was,i was making payments,but not full payment,what can i do -or what should i do,no money for an attourney,the back wants me to pay off the loan under the charge off,should they reduce the amount i'm comfussed because they never tried to talk to me.
The second lender has the rights to charge off the loan. A collection agency will contact you and collect the dues from you. I don't think you would be able to take any legal actions against the lender for charging off the loan. However, you can ask the lender to call back the account from collections. If he does so, then you would be able to negotiate with the lender about that account.
HI, we have a 2nd mortgage with Beneficial charged off in Dec-ironically, when we finally were able to contact someone to make arrangments to pay. So now we have received a "right to cure" letter giving us till April 29th 2010 to pay the $25,000 (we origianlly borrowed $16,000). My husband is in a really bad position because he has a gov't security clearance that he could lose-I know this will go to collections now, and probably already has-but I do not know whether to try to find out where it has gone-or should we wait for a letter from CA? We do want to make payment arrangements with them.
You can contact your lender and ask him to let you know about the collection agency. In case the lender does not let you know about the CA, then you can wait for their letter. Once they send you the letter, you can start making payment arrangements.