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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?
here's whats happening to us. we have a first and second with the same mortgage company. i was forced to retire because of health problems. my income was cut in half. i kept paying both for a few months (by using savings). but finally realized that i the savings was disappearing and i would lose the house anyway. i tried to no avail to contact my mortgage company, but they would not talk to me. last june 2008, i made my last payment on both mortgages. then the phone calls started to come, but at first it was just people in collection and they would not talk about anything but me making my payments. i filled out the paperwork for the loss mitigation program. i did it on line, mailed it a couple of times and faxed it. after several months of no response, they finally modified my first, but has totally ignored my second. they stretched my loan out to 40 years and lowered my interest. it lowered my payments by $600. a month. but now what happens to the second? i tried to get them to address both loans at the time they were working on the first, but they would not listen to me. in the plan recently released by the obama administration, making home affordable (mha) there is reference to extinguishing second mortgages. what does that mean? now i have the mortgage company calling daily about the second mortgage. i have told them i can't pay it. i just live in fear as to what their next move will be. it just doesn't seem like they would modify my first and then foreclose on my second. i owe 260,000 on first and 60,00 on the second. the home next door to me (same as mine) foreclosed about six months ago and resold for 120,000. has anyone else had there first modified and not their second. i welcome any replies.
Posted on: 12th May, 2009 10:17 am
My home is worth $230,000. I owe $490,000. I owe $375,000 on my first and 115,000 on my second. The second is with popular "garbage" mortage. I notified them I would be missing my first payment after two years of paying on time and the guy blew a fuse. For the past 3months they have been calling me on Sunday's before the mortgage was due. It did not matter that I was current in my payments they still called. I got in a shouting match with the guy because he kept demanding that I give him an answer when I can pay. When does the lenders actions cross the line if you cannot pay?
Posted on: 12th May, 2009 10:57 am
It was really very useful replies which all the menbers are giving and you will get the exact information regarding What happens if you stop paying your 2nd mortgage?
Posted on: 12th May, 2009 10:52 pm

To VickiB,

It is good that your lender is modifying the first loan. As far as the second loan is concerned, there are chances that lender would charge it off. A collection agency will then collect the dues from you. I would suggest you to contact your lender again and discuss your options.

To dallas,

Once you are delinquent on your mortgage payments, the lenders may start demanding the dues from you. However, they cannot cross the line or mis-behave with you.

Posted on: 13th May, 2009 04:14 am
I have a 1st and 2nd mortgage. I am up-to-date on the first one and was recently approved for a loan modification. I am behind on my 2nd mortgage for few months now. Can the 2nd mortgage foreclose my house? Please advise. Thanks!
Posted on: 15th May, 2009 08:47 am
hi guest!

welcome to forums!

the second mortgage lender has the right to foreclose the property but in most cases, they don't foreclose. they can charge off the mortgage and a third party collection agency will collect the dues from you. i would suggest you to speak to the second mortgage lender and check out if he can also modify your loan.

feel free to ask if you have further queries.

Posted on: 15th May, 2009 10:19 pm
We have a 1st & 2nd Mortgage. We are awaiting a possible modification response to our first mortgage (30 yr. fixed at 7.5%-$250,000). Our 2nd mortgage is what is killing us (30 yr. fixed at 11%-$95,000). Our lender with our 2nd mortgage will not do a permanent modification, only a 6 month temp. modification. This is killing us. We want to keep our townhome and do what is right. But they refuse to work w/us. If our home goes to forclosure, we would need to find a rental. However, we cannot afford to rent a place and pay a judgement by the 2nd mortgage co. We are at a loss. We pay a total of $3,000 month w/both mortgages combined. Due to the economic crisis, our home's worth is now $80,000 less than it was appraised at originially. Our home is worth the value of our 1st mortgage only. We are hesitant about declaring bankruptcy. Ideally, we want a permanent, not a temp. fix to a situation that is unbearable. What would be your best recommendation?
Posted on: 31st May, 2009 10:51 am
hi carol,

it would be best if you could negotiate with your second lender and convince him for a permanent modification. you can contact a loss mitigation expert who can speak to your lender for a permanent modification.

however, you should note that approving the modification is the discretion of the lender. if the lender is not ready for a permanent modification, then you'll have to go for a temporary modification.

Posted on: 31st May, 2009 10:56 pm
I am going through this to I owe more then my 1st and 2nd put together than my house is worth. 1st mortgage gave me a forbreance and I have been trying to work with the 2nd wamu since nov.2008 and still no motification and everytime you call they lost papers or said my motification was declined but they don't know why so they had me resend the papers again and they don't know who is working on my case it is a mess and I am getting no where. on top of this I had lost a home in a fire 3 years ago I guess 1 good thing I won't have much to pack up when it forecloses!!!!!!!!!!well except for my 4 children I feel horrible for them what can I say?
Posted on: 03rd Jun, 2009 10:57 am
Hi miamio,

You are really in a tough situation. Granting a forbearance or a foreclosure is the discretion of the lender. If you cannot prove your hardship to the lender, he may not accept your request.

I would suggest you to contact a loss mitigation expert and ask him to deal with your lender. He will negotiate with the lender on your behalf so that the lender accepts your request.

Take care.
Posted on: 04th Jun, 2009 01:42 am
Hello, I have lived in a property for 11 years and my wife and I can't sell the house because the property value. The city assessment is 118,000 and the realtor says the most I can get for our property is $114k. Our outstanding loan is 145k; which will give us a negative.

Now we want to leave this property and move out of state; how can we do this? Do you recommend (e.g., foreclosure, bankruptcy, or what?). :(
Posted on: 14th Jun, 2009 03:59 pm
I am able to pay my 1st mortgage; however, I cannot pay the 2nd mortgage due to loss of income. The mortgage company told me they would only work on a loan modification if I continue to pay the monthly payment. The mortgage company will not work on a loan modification even though I've provided all the documentation they requested for loan modification. I don't understand why the mortgage company expects you to make payments in order for them to work on a loan modification. They are now threatening foreclosure. Can anyone think of a solution to my problem?
Posted on: 15th Jun, 2009 06:41 am
i am in the process of foreclosing my home. After its sold in an auction and i still owe money to the 2nd mortgage can I declare bankrupcty then....
Posted on: 17th Jun, 2009 01:29 pm

Welcoem to the forum and sorry about your situation

The lender's want to make sure that you will be able to make payemnts after they make the modification. The documents you submitted need to prove that you are in hardship, but at the same itme your income needs to support the required payment after modification

Good luck and feel free to ask
Posted on: 17th Jun, 2009 08:54 pm
hi, my second morgage has filled forcloser on my home, my first morgage has modified my loan to 3% lowerd my payment.i hired a lawyer to file bankrupcy to wipe out the second but it is almost impossible to pay my lawyer and keep up with my first morgage,what should i do, contact the lawyer who is forclosing and explain ahard ship ? my first is $189,000,my second $47,000, my house is has dropped down to $160,000
Posted on: 27th Jun, 2009 03:35 pm
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