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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?
Hi Guest,

The second lien won't come off. But depending upon your state laws if the SOL period for such a loan is over, then the collection agency to whom it has been charged off, can't take a legal action against you. It will be better if you could pay off the lien and get rid of it.
Posted on: 19th Mar, 2013 10:50 pm
discharged from bankrutcy, what hapens to second mortgage
Posted on: 27th Mar, 2013 11:15 pm
Hi hennery,

If you have been discharged from the second mortgage in your bankruptcy, then you won't be personally liable for paying it any more!
Posted on: 28th Mar, 2013 11:12 pm
I live in California and my wife and I are separating and likely divorcing. We have a first and a 2nd on our house and owe about 75k more than it is worth (its worth about 155k). The first we refinanced in 2010 to a 30 year fixed but the 2nd is a 10 year arm interest only and adjusts in 2017. With the impending divorce neither of us can afford to keep the house. We plan to stop paying both payments and using the money to pay down our credit card debt (we are using 55% of our credit right now). Is this the best plan and should I contact my mortgage companies now and let them know we will not be able to pay or should I wait till we miss a payment and they contact us? Any advice is greatly welcome.
Posted on: 17th Apr, 2013 04:29 pm
Hi sac!

Welcome to the forums!

You can apply for a loan modification and check out if the lender can offer you a good payment plan to pay off the loan.

Feel free to ask if you've further queries.

Posted on: 17th Apr, 2013 11:17 pm
Hi I also have a 1st and 2nd mortgage only my 1st is a 120.000 and my 2nd is 24.000 and my loan company put mind in a charge-off situation can they foreclose on me.
Posted on: 08th Jun, 2013 08:26 am
Hi Guest,

If the lender has charged off the loan, then they won't foreclose your property. It is the collection agency who will in turn come after you for the payments.

Posted on: 09th Jun, 2013 10:11 pm
My home foreclosed in 2008. I had a 80/20 with two mortgages. The first lender foreclosed but did not pay off the 2nd lender. They sold the home for enough to pay off both of the mortgages. Where did the rest of the money go? Why was the 2nd mortgage not paid? I called the 2nd mortgage lender and told them that the first lender was foreclosing so that they could make sure they got their part. This was in the State of Georgia.
Posted on: 12th Jul, 2013 09:19 pm
Hi Tara,

It is responsibility of the first mortgage lender to pay off the second loan if the property sale resulted in a profit. You should immediately contact the first mortgage lender and sort out the matter.
Posted on: 14th Jul, 2013 10:13 pm
not paying second.. cant afford it.. have an interest only loan on my home now until 9/2015. current on first's payments.. my second is threatening auctioning my house to get the 27k I owe him.. balance on first is 133k.worth maybe 150k. I am on social security and very scared.. can I loose my home!!
Posted on: 20th Nov, 2013 06:57 pm
Hi annette!

Welcome to the forums!

If the second mortgage lender forecloses the property, then you will be loosing your home. But in most cases, the second mortgage lenders do not foreclose the property rather they charge off the loan.

Feel free to ask if you've further queries.

Posted on: 20th Nov, 2013 09:16 pm
Have lost our home in the housing crisis. Tried short selling and had three buyers. The second mortgage lender stopped it all three times. Lost the home outright after that to foreclosure. Now...2nd mortgage lender is out and harrassing us for the 2nd payoff. That was over two years ago...what is the statute of limitations in Utah? Can they take us to court and sue for the amount owed? Thanks
Posted on: 24th Nov, 2013 09:20 pm
Hi Guest-U,

A query similar to yours has been answered in the given page:

Take a look at it. I hope it will help you.
Posted on: 24th Nov, 2013 10:28 pm
My first mortgage sent me deeds to mobile home dismissed first mortgage, second mortgage in collections do I have to pay
Posted on: 06th Aug, 2014 06:49 am
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