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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?
I have 1st and 2nd mtg 1st 413000 2nd 100000. my house is beeing on sale from jan 2007 and last six months we are not paying anything. both bank cannot do the foreclosure or short sale. I have 2 gas stations with partners. but one is very bad other so so. It affect on my business If i do bankrupsy? What i supposed to do. just staying at home with out bankrupsy?.If i stay here and not doing anything what's going to happen?.
Thanks.
Posted on: 19th Mar, 2009 07:22 pm
hi luke,

did the lender give you any reason as to why he can't short sale the property?

as far as bankruptcy is concerned, if you file chapter 13 bankruptcy just for the mortgage, it will not affect your business. moreover, by filing chapter 13, you will be able to save your property. you can pay off the mortgage dues to the lender according to the alternative payment plan given by him and clear off the dues within 3-5 years.
Posted on: 20th Mar, 2009 12:00 am
Did the lender give you any reason as to why he can't short sale the property?
we talked 1st mortage they said we don't do shot sale or foreclosure according to the policy. 2nd mortage said, they need $30000 or some body needs to co-sign to take the responsibility of the rest of the money $70000 and also needs to sign the note both party to sell this property. buyer came give an offer $470000. 2nd mortage not let us to sell this property until we fullfill the abow condition.we have only one income since one year.
thank you.
Posted on: 23rd Mar, 2009 03:27 pm
if you cannot fulfill the conditions given by the lender then filing bankruptcy would be a better option in your case.
Posted on: 23rd Mar, 2009 09:39 pm
hi,
we have been out of our house since august 2008. it is currently in foreclosure because we had to file bankruptcy at that time (husband lost his job and our income decreased significantly). we desperately want to move back to our home and have almost worked out a loan modification with our first mortgage that we can afford. we are worried now because we realized that this does not include our second mortgage. (we owe $210,000 on first and $64,000 on second.) our house would sell for much less at sherriff's sale. is the second mortgage company going to come after us after our chapter 13 is over if we don't try to work something out with them now? we are afraid that we will not be able to afford the payments on the first mortgage and the second mortgage together. please help us get our house back! thank you!
Posted on: 11th Apr, 2009 07:19 pm
Welcome wag,

The second mortgage company will have the right to come after you if you do not work out a plan with them. You can try to negotiate with the second lender so that he lowers your payments which can help you in paying off the dues.
Posted on: 12th Apr, 2009 11:58 pm
i owen 260 in the 1st and 135 on the 2nd and my house is upside down value is around 250 now
the second morgage told me they gave up my account to a third party ,they dont know who they are so the cannot help me ,20 days later i received a letter from a collection agency saying the will represent the chase debt ,contact them or pay the the 135 000 check

so what will happen next... can they foreclusure,sue me ?
Posted on: 21st Apr, 2009 11:50 am
Hi ibana

If you do not contact them and pay off the dues, the collection agency can sue you for the debt.

Thanks.
Posted on: 27th Apr, 2009 01:57 am
I understand this forum posting is old so I hope someone will read it. We bought a home three years ago with the same thing a 80 - 20 loan, the 1st mortgage is adjustable after two years and has gotten really high, the 2ed mortgage is fixed for 15 years and then balloons. The 1st is 270.00 the 2ed is 64.000.

We just worked out a loan motification on the 1st loan, they gave us a fixed rate of 5% for 25 years then ballons, our payments have been lowered 500.00 a month. We are so happy, but the 2ed loan just told us that they can't help us.

Our home is worth less then what we owe. The 2ed loan is 700.00 a week, and is around 12% on 64,000. I was trying to get them to lower the rate so we can pay around 400.00 a month, something we can afford.

Any advice, tips, etc? Are they just acting tough, what can they do, or cant do? This extra 64,000 is killing us, we have not made a payment on it in three months, if it was half we could swing it. Thanks, kimmy.
Posted on: 07th May, 2009 06:05 pm
Sorry I mean 700.00 a month. Thanks. (On second loan)
Posted on: 07th May, 2009 06:11 pm
Hi kimmy!

Welcome to forums!

$700 a month on second mortgage is really a lump sum amount. You did the right thing by appling for a modification with the second lender. But it would be your lender's discretion whether he would accept it or not. However, did they give you any reason as to why they won't accept your request for modification? I would suggest you to negotiate with them further and check out if they can offer you any option.

Feel free to ask if you have further queries.

Sussane
Posted on: 07th May, 2009 08:08 pm
I have first (536000) second(123000). My home is worth 480000.
1st is not willing to do any modification as i am current on both.

I was thinking of stopping mortgage for 2nd so that they can
come back to me with some offer.

Is that a sound strategy? Otherwise I may have to go short sale route.

Please advise..
Posted on: 08th May, 2009 08:17 pm
Hi pardescnn,

The lender will offer you a loan modification based on your financial situation. If you deliberately stop the payments but cannot prove to the lender that you are going through a financial crisis, then the lender will not accept your request for modifying the loan. I personally don't think this is a good strategy.

Take Care.
Posted on: 09th May, 2009 01:48 am
what will happen if we quit paying the 2nd mortgage payment? we are in the process of bankruptcy, but want to keep our house
Posted on: 11th May, 2009 02:39 pm
Posted on: 11th May, 2009 08:41 pm
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