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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?
welcome alliblake,

there is nothing like you will not be qualifying for a short sale if you have two mortgages. you will have to start talking to a first lender for a short sale. if the first lender agrees, then you can start negotiating with the second lender. there are chances that the second lender will charge off your second loan to a collection agency.

to know more about second mortgage charge off, check out the following link:
http://www.mortgagefit.com/know-how/secondloanchargeoff.html
Posted on: 24th Dec, 2008 12:23 am
Great Forum,
I have a first with Wells Fargo for 210,000 and a second with National City for 270,000. My home is worth maybe 400,000 but nothing is selling here in Oregon. We missed our first payment with Wells and they sent me an acceleration letter in the middle of December, only 45 days down. Our second is also 2 months down. We have had to rob our 401 for the past year and draw on the second to live until they froze it in April. Now I am out of money. I have seen two conflicting reports when it comes to seconds, one that they can foreclose, the other says they won,t. Based on my value what is your opinion? Will the 2nd foreclose to pay off 210,000? What is the possibility of getting a payoff /negotiation of 10-15% of balance based on the value of the home? My spouse is not on the note and we relied on this income to make payments for the past year, got laid off over 8 months ago and thats where we ran into trouble. My spouse is now employed again and I am working odd jobs. My spouse has some funds left in a 401k so if we worked a deal with National City, we should be able to keep making payments on the first. Our total payments are nearly 3k a month, the first is half that.... fun situation. Thanks for any feedback.
Posted on: 26th Dec, 2008 08:10 am
Hello Adonis

Many thanks for your great response

We did speak to the FIRST MORTGAGE company "AMERICAN HOME MORTGAGE" they are horrible!
We found out they are based in India
We did ask RE: SHORT SALE, they said "No, we do not do that"

Our first mortgage of course as you said, will not budge without the first, so we are 'stuck'

We have made out FIRST MORTGAGE payment, but didn't make the second

They call daily, but we keep missing the calls.

We will call them back and let them know we cannot make the second payment. My husbands wages were cut 45%!!!

Nasty mess this economy

For 3 solid years we have made out payments - EVEN PAID EXTRA most months thinking we were doing a 'GOOD THING'

) ;
Posted on: 26th Dec, 2008 09:57 pm
i have likely situation. i have first 250k in countrywide initialy above 3 years ago. second 50k was also in countrywide, but after a few payments they move second to another company. now i paid all on time. but my home now worth about 200k. what i can do? i have still good job and can pay 1st an 2nd. six month ago first mortgage rised my % to 9.5 the seconfd i have still for 12.65% for 200k i can purchase much better house than present. please help? what can i do without destroy my good credit history. they don't won't refinance case va;ue my 2002 house?
thanks ryszard
Posted on: 28th Dec, 2008 09:16 am
Hi

To marim,

If the second mortgage lender forecloses the property, then the second lender will have to pay the dues of the first mortgage lender. I think the first mortgage lender can foreclose the property. But in that case, you will still be liable to pay off the second mortgage.

If you can afford losing the house, you can speak to the lender about a short sale or a deed in lieu foreclosure. In these two cases, you will have to pay off the second mortgage but the affect on your credit will be lesser.

To alliblake

As your lender has said that they do not do a short sale, check out if they can go for a deed in lieu. Though the credit will badly affected in a deed in lieu, it is better than a foreclosure or bankruptcy. As you are unable to make the payments, there are chances that if the first lender goes for a deed in lieu, the second lender will charge off the mortgage to a collection agency who will in turn collect the dues from you.

Thanks.
Posted on: 29th Dec, 2008 02:17 am
ryszard, its true that as the value of your property has fallen, the lender will not refinance the property. You can try selling off the property. Once the property is sold, you can pay off the mortgage in full. Then you can buy a new house. Or else, you may rent this house and buy a new house. But before doing so, check out the mortgage docs to see if the lender may call the mortgage due if you rent the property. If such a clause is mentioned, then you cannot rent the property.
Posted on: 29th Dec, 2008 02:22 am
If you can't pay your second can they only put a lien on your property. Can they take money out your bank accounts?
Posted on: 10th Feb, 2009 12:58 am
If you are going for a modification well they combine your first and second into one laon
Posted on: 10th Feb, 2009 01:33 am
Hi Barbara,

In loan modification, a particular loan is modified. The lender will give you a new payment plan in order to pay off the mortgage dues. On the other hand, if you go for a refinance, then the lender can combine the first and the second loan into one.

Thanks.
Posted on: 13th Feb, 2009 02:03 am
I have the same situation as others here. I have and adjustable rate mortgage. I have an adjustable 1st with countrywide and a second with chase. I went to a company for help to get a loan midification. That company took my money,did nothing for 90 days and then closed up on me. Now I am speaking with countrywide and asking them to modify my loan. My condo is worth around $150K to $170K due to all the other condos that are forclosed or empty here in downtown miami. I owe about $254K for the first mortgage and $90K on the second.

I have pointed out that I can just walk away like my neighbors are doing but we would like to stay in this condo. I told them that I had read many terrible things about them on the internet as far as them offering helpfull loan mods but I am skeptical. I am $200K upside down. I will be sending them everything that they asked for to start the process but what should I do to handle the second mortgage with chase? Could I offer to go into bankruptcy and tell them I can offer them $9K to settle the debt? Or should I just ignore them and let them chase me? What would you do in my situation? I am already 90 days past due on both. We had some serious problems financially but now things are getting back to normal but not enough to get us current.

I want them to drop the loans down to what the property is worth. I am not sure how to do this even though I have a professional brokers opinion on the current value..

Please advise me as what you would do. This is not my normal thing....

Thanks.

Mike in Miami, fl.
Posted on: 27th Feb, 2009 03:16 pm
Hi Mikeinmiami,

If you do not pay the mortgage dues to the second lender, they will have the rights to foreclose your property. However, in order to foreclose the property, they will have to pay off the mortgage dues of the first lender.

I would suggest you to speak to your second lender and try for a loan modification with them as well. You can also speak to them about the amount you can offer them in order to settle the debts.

Thanks
Posted on: 27th Feb, 2009 08:50 pm
hi my question is that i also have 2 loans and my 1st loan made a modification but my 2nd loan is like 40,000 dint work with me and they desided to referead to a a collection agency so what would happend if i deside to just pay my 1st loan can they take my house away any sugestions or its better if a short sale it because i only afford to pay my 1st loan.
Posted on: 28th Feb, 2009 03:20 pm
Hi julis,

As your second mortgage lender has charged off your mortgage to a collection agency, you will have to pay the mortgage dues to the collection agency. The second lender will no longer collect the dues from you. In this situation, though you short sale the property, you will still be liable to pay the dues of the second loan.
Posted on: 01st Mar, 2009 09:22 pm
I'm located in the state of Washington, and have seen my fair share of mortgage company's that wont budge. We modify loans for people on their first and second loans. Most of our clients are ones that haven't been able to modify by themselves. I've been been in the loan modification business for almost 3 years. We know most of these banks and have good contacts with them (except HomeEQ). We don't charge a huge upfront fee just $250 for the paperwork and filings. We only get paid after we have approval from the lender. So if your not getting any luck or need advice call my office 425-877-1218. Don't fall for stupid huge upfront fees, they get your money and never call you back.
Posted on: 07th Mar, 2009 03:18 pm
It is most important to sign a deal with proper care as it is a mutual salvage program with little belief on either side. You have to keep the commitments. But if is the situation that has caused the problem, renegotion term is also in the market (Althoug success doubtful). You need to tell the truth that foreclosure is the only option left you are sincere enough. Also, you need proper justifications, an delay of payment may be clue to click at their side for a new turn.
Posted on: 08th Mar, 2009 10:19 am
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