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:
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:
- 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).
- 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.
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.
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?
My girl friend when she was married went through a forcloser, the 2nd was never taken care of so it seems, on her credit report it states that her 2nd (monthly payment ) is late and fees are added, this happens every month and its been 3 years since the forclosure of the home . can you possibly fill in the blanks as to possibley whats the status and what she might need to do or can do? O r must do?
attatched to 1st post: She lives in calif all loans were in calif and the 2nd was a equity line of credit.
Hi Yellowspider!
Welcome to forums!
Though the property was foreclosed, the second mortgage lender has the rights to come after your girlfriend in order to recover the equity line of credit. This loan was not satisfied at the time of foreclosure. So, your girlfriend should contact the lender and negotiate with them and try to settle the debt.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
Though the property was foreclosed, the second mortgage lender has the rights to come after your girlfriend in order to recover the equity line of credit. This loan was not satisfied at the time of foreclosure. So, your girlfriend should contact the lender and negotiate with them and try to settle the debt.
Feel free to ask if you've further queries.
Sussane
Hoping to get some help.. I bought my home 5 years ago for $350K w/ a 80/20 loan, 1st is fixed 30 year and 2nd is 15 year. The home is now worth between $240K-$250K. I have heard and read many people have stopped payment on their 2nd and eventually the 2nd lender will negotiate a settlement.
Since my lenders for my 1st and 2nd are the same, if I stop payment on my 2nd can the lender foreclose? Due to the fact both the loans are w/ the same bank are they less likely to negotiate a settlement?
Thank you in advance for your advice and help!
Since my lenders for my 1st and 2nd are the same, if I stop payment on my 2nd can the lender foreclose? Due to the fact both the loans are w/ the same bank are they less likely to negotiate a settlement?
Thank you in advance for your advice and help!
Gabe, they certainly can foreclose, though it's not likely they will. A better alternative for them and for you as well, would be a modification, since they know they'll retrieve no benefit from foreclosing at this stage. There are incentives if they offer you a modification - you ought to ask them about it.
Please don't go for forbearance - it won't benefit you in the long run.
Please don't go for forbearance - it won't benefit you in the long run.
Yeah, this is me:
Gabe, they certainly can foreclose, though it's not likely they will. A better alternative for them and for you as well, would be a modification, since they know they'll retrieve no benefit from foreclosing at this stage. There are incentives if they offer you a modification - you ought to ask them about it.
Please don't go for forbearance - it won't benefit you in the long run.
Gabe, they certainly can foreclose, though it's not likely they will. A better alternative for them and for you as well, would be a modification, since they know they'll retrieve no benefit from foreclosing at this stage. There are incentives if they offer you a modification - you ought to ask them about it.
Please don't go for forbearance - it won't benefit you in the long run.
George,
I did receive a modification on my 1st… however they have not offered the same on my second. I have tired many times to contact them, but have received the run around. Would I get their attention if I stopped payment on my 2nd while staying current on my 1st? Thank you?
I did receive a modification on my 1st… however they have not offered the same on my second. I have tired many times to contact them, but have received the run around. Would I get their attention if I stopped payment on my 2nd while staying current on my 1st? Thank you?
Hi Gabe,
It is easier to get a loan modification if you've already defaulted on your mortgage. However, if you deliberately stop the mortgage payments, the lender may not consider your request.
It is easier to get a loan modification if you've already defaulted on your mortgage. However, if you deliberately stop the mortgage payments, the lender may not consider your request.
what if your first is more than the value of the house. and you also have a second with another mortgage co. we live in california. what can the mortgage co. do to us who holds the second
sorry for being absent so long and not responding to you, gabe...i doubt that your lender is going to be too concerned about what you do with the second mortgage. they've got your house covered with liens no matter what, and they can always charge off that account, allowing them to move on (in a financial sense) and collect the balance due if and when you sell the home - if there's sufficient equity; or else, suffer a loss if you sell or they foreclose without sufficient equity.
that's a mouthful, but basically i see no reason to monkey around with the 2d.
darryl, the second mortgagee could begin a foreclosure action, but it would be foolish. they'll end up continuing to bug you for payments, ultimately charge off the account, continue to bug you and wait patiently in the hope that when the house is disposed of (sale, whatever), there will be enough equity for them to get paid off.
that's a mouthful, but basically i see no reason to monkey around with the 2d.
darryl, the second mortgagee could begin a foreclosure action, but it would be foolish. they'll end up continuing to bug you for payments, ultimately charge off the account, continue to bug you and wait patiently in the hope that when the house is disposed of (sale, whatever), there will be enough equity for them to get paid off.
i have a first mortgage of 40000 and a second mortgage of 79000 the house is worth 91000 now what will happen if i stop paying the second mortgage there both in to different banks
Hi raby!
Welcome to forums!
If you stop paying the second mortgage, the lender will either try to foreclose the property or charge off the account and assign it to a collection agency.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you stop paying the second mortgage, the lender will either try to foreclose the property or charge off the account and assign it to a collection agency.
Feel free to ask if you've further queries.
Sussane
I think any second mortgagee with such an investment out there would be foolish not to begin an action. If your hint at the value is anywhere close to valid, then the lender will stand to reap the benefit of a reasonable amount of money in foreclosing, it would appear.
Charging off is merely a financial transaction and has nothing to do with what you owe or don't owe. Your obligation remains intact.
Charging off is merely a financial transaction and has nothing to do with what you owe or don't owe. Your obligation remains intact.
we tried for 2 years to get a loan modifacation, whith no luck. Finally because of medical problems and financial problems we walked away from our home in Dec 2010. Our 1st loan holder was pretty decent after we talked to them however it has been 9 months and the 2nd mortage holder is now sending us a letter that if not paid they will turn us in to a collection agency. We cannot afford to pay them, should we seek leagal help at this point?
Hi granny,
You can seek legal help. However, it remains a fact that unless you pay the second mortgage lender, they will have the rights to charge off the loan and assign it to a collection agency. It will be better if you could negotiate with your lender and set up a payment plan to pay them off.
Thanks
You can seek legal help. However, it remains a fact that unless you pay the second mortgage lender, they will have the rights to charge off the loan and assign it to a collection agency. It will be better if you could negotiate with your lender and set up a payment plan to pay them off.
Thanks