Posted on: 07th Dec, 2006 03:49pm
If you haven't paid your mortgage for 6 months or you've been through a foreclosure or short sale wherein you couldn't pay off the second loan after getting rid of the first, your lender is likely to issue a second mortgage charge-off.
What is second mortgage charge-off all about?
If your second mtg lender intends to charge off the loan, it means he's declaring the debt as uncollectible. So, the lender will no longer collect payments from you. But this doesn't mean that you don't owe the money. The lender reports the debt as a loss when he files a Profit and Loss Statement (for his company) with the Internal Revenue Service. He sells off or assigns the debt to a collection agency that'll collect the payments on his behalf. So, your debt hasn't been canceled or forgiven.
When a second loan is charged off after a foreclosure/short sale on the property, the mortgage is considered as an unsecured debt since the collateral has been sold off already.
When a second loan is charged off after a foreclosure/short sale on the property, the mortgage is considered as an unsecured debt since the collateral has been sold off already.
What happens after a second loan charge-off?
When a second loan is charged off and sold to a collection agency (CA), it's essential that you negotiate an alternative payment plan with the CA. In case you can't meet up with the monthly loan payments, you may settle the debt for an amount less than what you owe to the CA. Otherwise, you may face any of the consequences explained below:
However, when the second mtg debt is settled, you may have to pay tax on the balance forgiven by the lender. This is because the balance forgiven or canceled debt is considered as your income. But you can avoid paying the tax provided you qualify for mortgage debt forgiveness.
- CA may sue you: If you don't make any payment towards the mortgage, the CA may file a lawsuit against you during the SOL (Statute of Limitation) period. Once you decide to settle the debt, make sure you get a settlement agreement in writing from the CA.
- Property retains the 2nd lien: The charge-off does not remove the second lien from your property unless you pay it off.
However, when the second mtg debt is settled, you may have to pay tax on the balance forgiven by the lender. This is because the balance forgiven or canceled debt is considered as your income. But you can avoid paying the tax provided you qualify for mortgage debt forgiveness.
Will I get 1099-C Form after a second loan charge-off?
Since a charge-off doesn't imply cancellation of debt, therefore the lender won't send you a 1099-C Form. Such a form is sent only when a lender cancels your debt and reports it to the IRS as a tax loss.
Can I remove second loan charge-off from credit report?
You can have the charge-off removed from your report only when you settle or pay off the account in full. Unless you make payments towards the account, the negative item will reflect on your credit report for 7 years. After you settle or pay the charged-off account in full, request the collection agency to update the account status as "Settled charge-off" or "Paid in full" respectively. However, a "Paid in full" is certainly better than a "Settled charge-off" status on your credit report. Know more on how to remove charge-off from credit report.
When a second mortgage is charged off, it brings down your credit score by 50 points or more depending upon the other negative items you may have on your report. The best way to get rid of this negative item is to pay down the debt asap and negotiate with the CA to update your account status accordingly.
When a second mortgage is charged off, it brings down your credit score by 50 points or more depending upon the other negative items you may have on your report. The best way to get rid of this negative item is to pay down the debt asap and negotiate with the CA to update your account status accordingly.
Our 2nd mortgage with beneficial was an original 15,000.00 loan. It has escalated to 32,000.00. They are going to charge off this month. My husband is disabled & 1 child disabled. The loan is only in his name. But my name is on the deed. I understand a 1099 we will receive. What happens to the charge off. with a lien against the home. Will it come off in 7 years? Thanks, Melissa
jessica
is your answer about what happens to a second mortgage after charge off in need of updating? isn't it true that the lender is barred from collecting on the second in california - according to bill passed by congress last year? but, what then happens to the second? i've been told that it remains for 4 (or some say 5) years and then is discharged. no mention if it is written off and a 1099 is issued after said 4 or 5 years. any idea?
is your answer about what happens to a second mortgage after charge off in need of updating? isn't it true that the lender is barred from collecting on the second in california - according to bill passed by congress last year? but, what then happens to the second? i've been told that it remains for 4 (or some say 5) years and then is discharged. no mention if it is written off and a 1099 is issued after said 4 or 5 years. any idea?
Hi Marc,
The information on second mortgage charge-off is not state-specific and it does not deal only with California where the anti-deficiency laws prevail. It is a general information to help people understand what is a second mortgage and what are its consequences. However, to make it more clear, I'll update the page with a few lines about anti-deficiency state practices on second mortgage.
Thanks for your suggestion. :)
With regards,
Jessica
The information on second mortgage charge-off is not state-specific and it does not deal only with California where the anti-deficiency laws prevail. It is a general information to help people understand what is a second mortgage and what are its consequences. However, to make it more clear, I'll update the page with a few lines about anti-deficiency state practices on second mortgage.
Thanks for your suggestion. :)
With regards,
Jessica
hi jessica
i have a first and 2nd on my home , the second was charged off and i tried to negotiate a settlement with the bank . the bank is now telling me they had no idea the loan was secured and now they want to start a foreclosure ,do they have the right to do so or have they negotiated in bad faith
i have a first and 2nd on my home , the second was charged off and i tried to negotiate a settlement with the bank . the bank is now telling me they had no idea the loan was secured and now they want to start a foreclosure ,do they have the right to do so or have they negotiated in bad faith
Hi freddie,
You've mentioned that your second mortgage has been charged off by the lender. In that case, the lender does not own your loan account any more. Thus, he won't be able to foreclose your property. However, the collection agency, to whom your loan was sold off, will be able to take an action against you.
You've mentioned that your second mortgage has been charged off by the lender. In that case, the lender does not own your loan account any more. Thus, he won't be able to foreclose your property. However, the collection agency, to whom your loan was sold off, will be able to take an action against you.
Hi Freddie,
I'm a bit surprised to know that the bank isn't aware of the loan being a secured one. Since the loan has been charged off, it implies that the bank isn't interested to collect payments from you anymore. So, the question of a foreclosure to retrieve the payments doesn't arise in this situation.
I'd like to know whether both the loans are taken from the same bank. If they aren't, well then the 2nd mortgage lender can foreclose but he needs to pay the first lender as the latter holds the primary lien on the property.
However, if the bank isn't willing to allow a settlement, then you may negotiate an alternative repayment plan. May be they'll agree to allow it since they'll find you willing to pay off your mortgage. But will it be difficult for you to pay on a monthly basis? What's your financial situation like? Depending upon your income and affordability, you can just propose to pay a certain amount each month to the bank. Perhaps the bank may agree to accept the proposed monthly payment.
Feel free to share further details or ask questions if any.
With regards,
Jessica
I'm a bit surprised to know that the bank isn't aware of the loan being a secured one. Since the loan has been charged off, it implies that the bank isn't interested to collect payments from you anymore. So, the question of a foreclosure to retrieve the payments doesn't arise in this situation.
I'd like to know whether both the loans are taken from the same bank. If they aren't, well then the 2nd mortgage lender can foreclose but he needs to pay the first lender as the latter holds the primary lien on the property.
However, if the bank isn't willing to allow a settlement, then you may negotiate an alternative repayment plan. May be they'll agree to allow it since they'll find you willing to pay off your mortgage. But will it be difficult for you to pay on a monthly basis? What's your financial situation like? Depending upon your income and affordability, you can just propose to pay a certain amount each month to the bank. Perhaps the bank may agree to accept the proposed monthly payment.
Feel free to share further details or ask questions if any.
With regards,
Jessica
We were in the process of purchasing a short sale property when the title company found another lein on the property from a credit card company that the sellers owed 18,000. The sellers have no money, no credit, no property so they can't pay off the debt. But the credit card company is not moving on the lein. IF they don't remove the lein can we still buy the home or is going to have to go be foreclosed on ?
Though there is a lien on the property, you may buy it. However, you would become responsible for the lien, then. It would be better if you do not buy that property.
Hi,
My question is....my husband lost his job back in October. We had a first with Washington Mutual (now Chase) and a second with Chase. We filed for a loan modification with Chase a requested both loans be put together, refinanced. Well that did not happen and Chase is playing musical negotiator with our loan mod. It is now almost June and nothing. Everytime I talk to them, it's under review, under review and now it's with a forth negotiator. We have not made payments on our loans. We were told by a Chase Customer Service Rep back in October, it was ok not to, that our loan mod would be done before it would be held against us. That never happened and we got so behind, we'll never be able to catch up now....It has bit us in the butt, but we cannot afford to make the original payments any longer anyway. My husband did go back to work the first of the year, but makes a considerable amount of less salery. Anyway Chase sold our 2nd to 3rd party. The only way I know this is they sent us a letter. How long does it take for them to take us to court to get a judgment? I know other people who have been offered to pay there seconds off with a considerable low amount. Is there a chance the 3rd party collection could do that with us. Or is it too late? Can we negotiate with them to do something like that? I am just sick over this. I see no other alternative if they won't than to file bankruptcy.
Thank you
Patti
My question is....my husband lost his job back in October. We had a first with Washington Mutual (now Chase) and a second with Chase. We filed for a loan modification with Chase a requested both loans be put together, refinanced. Well that did not happen and Chase is playing musical negotiator with our loan mod. It is now almost June and nothing. Everytime I talk to them, it's under review, under review and now it's with a forth negotiator. We have not made payments on our loans. We were told by a Chase Customer Service Rep back in October, it was ok not to, that our loan mod would be done before it would be held against us. That never happened and we got so behind, we'll never be able to catch up now....It has bit us in the butt, but we cannot afford to make the original payments any longer anyway. My husband did go back to work the first of the year, but makes a considerable amount of less salery. Anyway Chase sold our 2nd to 3rd party. The only way I know this is they sent us a letter. How long does it take for them to take us to court to get a judgment? I know other people who have been offered to pay there seconds off with a considerable low amount. Is there a chance the 3rd party collection could do that with us. Or is it too late? Can we negotiate with them to do something like that? I am just sick over this. I see no other alternative if they won't than to file bankruptcy.
Thank you
Patti
The third party collection agency can negotiate with you. You can contact them and negotiate with them in order to lower your debt amount so that it becomes affordable for you to pay off the loan.
The attorney who negotiated my short sale informed me the debt had been forgiven and that I could go 'on with my life'. A month later the bank notified me I still owed $62,000...which my attorney said was a 'mistake'. After many back and forths, the bank has now charged off the debt and I'm dealing with a collection agency...the bank does not have any signed agreement by me to 'take on' this now unsecured debt. I never agreed to it and, in fact, would have foreclosed had I known since I don't have the money in any event. So what do I do...or what are the options, here, given that the bank signed off on the short sale but did not provide me or my attorney with any documentation that the debt was still owed.
I'm on a modification with my first lender but my second has been charge-off..
Can include the charge-off in my BK and if so what would happen with the deed?
Can include the charge-off in my BK and if so what would happen with the deed?
Hi Donald Wood,
In case of a short sale, the lender will be able to come after you for the deficient balance resulting from the sale. You are liable to pay it off. As the lender has now charged off the mortgage to a collection agency, you will have to negotiate with the collection agency and pay off the dues.
Hi Elizabeth,
As far as I can understand, you will be able to include the charged off account in your bankruptcy filing. You can get it discharged and keep on paying the first mortgage dues as per the payment plan you receive.
Thanks
In case of a short sale, the lender will be able to come after you for the deficient balance resulting from the sale. You are liable to pay it off. As the lender has now charged off the mortgage to a collection agency, you will have to negotiate with the collection agency and pay off the dues.
Hi Elizabeth,
As far as I can understand, you will be able to include the charged off account in your bankruptcy filing. You can get it discharged and keep on paying the first mortgage dues as per the payment plan you receive.
Thanks
My daughter is going through a bad divorce and had to move out of their home, her husband has had the second charged off but will not tell her or her attorney how he just said they chagred it off and he does not know why. Called the lender and they are not providng any informaiton either.. any ideas what happen??? would they just do that for lack of payment without some money given to the bank note at all. thanks
welcome ggman,
the lender has charged off the second mortgage. this means that your account has been assigned to a collection agency who will contact the borrower for the dues. the bank will not deal with the account any longer.
the lender has charged off the second mortgage. this means that your account has been assigned to a collection agency who will contact the borrower for the dues. the bank will not deal with the account any longer.
Hi,
Me and my husband declared bankruptcy about 4-5 years ago. We kept our house and mortgage. We had a 2nd mortgage of 15K besides our 1st mortgage at time of bankruptcy. We continued to pay on the 2nd mortgage, but fell behind, also we never received payment coupons in the mail anymore for our 2nd mortgage nor anything showed up on our credit report that we even had a 2nd mortgage. I called the last number I had on my 2nd mortgage and they told me it had been charged off. They gave me another number to call, and I asked if they could start sending me monthly statements, which they said no, because of my bankruptcy. Also, the only thing they coud do was fax me my history of payments to them and my outstanding balance. The balance has increased, they charge almost $100 month for each month I was late or didnt make a payment. My question is if this debt is still valid? Also, how can I make the debt go down instead of up? They werent very helpful and wouldnt give me much info.
Thanks
Me and my husband declared bankruptcy about 4-5 years ago. We kept our house and mortgage. We had a 2nd mortgage of 15K besides our 1st mortgage at time of bankruptcy. We continued to pay on the 2nd mortgage, but fell behind, also we never received payment coupons in the mail anymore for our 2nd mortgage nor anything showed up on our credit report that we even had a 2nd mortgage. I called the last number I had on my 2nd mortgage and they told me it had been charged off. They gave me another number to call, and I asked if they could start sending me monthly statements, which they said no, because of my bankruptcy. Also, the only thing they coud do was fax me my history of payments to them and my outstanding balance. The balance has increased, they charge almost $100 month for each month I was late or didnt make a payment. My question is if this debt is still valid? Also, how can I make the debt go down instead of up? They werent very helpful and wouldnt give me much info.
Thanks