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
Hi baileydal!
Welcome to forums!
Wasn't your second mortgage discharged in your bankruptcy filing? You should check out your bankruptcy discharge documents and even contact your bankruptcy attorney to get the information. If the loan has been discharged in your filing, then you're not responsible for it anymore.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
Wasn't your second mortgage discharged in your bankruptcy filing? You should check out your bankruptcy discharge documents and even contact your bankruptcy attorney to get the information. If the loan has been discharged in your filing, then you're not responsible for it anymore.
Feel free to ask if you've further queries.
Sussane
Hi Jessica - Thanks for your informative web page.
I am in a situation in which I have a letter from Chase Bank saying they will forgive my deficiency balance on both my 1st & 2nd loans upon receipt of proceeds from the short sale.
After they received the proceeds - they charged off both the 1st and the 2nd loan, and reported both loans as a 'charge off' on my credit.
This is incorrect on the part of Chase, no? :shock:
I am in a situation in which I have a letter from Chase Bank saying they will forgive my deficiency balance on both my 1st & 2nd loans upon receipt of proceeds from the short sale.
After they received the proceeds - they charged off both the 1st and the 2nd loan, and reported both loans as a 'charge off' on my credit.
This is incorrect on the part of Chase, no? :shock:
we had a second mortgage held by a family member that was over the value of the home. we had a balloon mtg company would not modify told aunt she said she knew the risk we sold she accepted proceeds but in release said she would not release liability. after closing she said she needs to file judgement so she doesnt have to pay gift tax and attorney wants me to sign consent of judgement. it was for $200,000 ill never be able to pay this off we have little extra income and are renting. if they file lawsuit/judgement i will prob lose my job. what should i do?
Hi!
Welcome to forums!
To JJ,
If you have a written document stating that your lender would forgive the deficient amount resulting from the short sale, then it would not be legal on their part to charge off the loan. I would suggest you to get in touch with your attorney and take necessary steps against the lender.
To Guest,
If there is a second lien on the property, then it needs to be paid off. You need to contact your lender and get a payment plan in order to pay it off. I hope with an affordable payment plan, you will be able to pay off the dues.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
To JJ,
If you have a written document stating that your lender would forgive the deficient amount resulting from the short sale, then it would not be legal on their part to charge off the loan. I would suggest you to get in touch with your attorney and take necessary steps against the lender.
To Guest,
If there is a second lien on the property, then it needs to be paid off. You need to contact your lender and get a payment plan in order to pay it off. I hope with an affordable payment plan, you will be able to pay off the dues.
Feel free to ask if you've further queries.
Sussane
hi, due to unemployment my husband and i had to file a chapter 7 bankruptcy and it was discharged in august 2009. our first and second mortgage were included in the discharge. we have kept current on the 1st mortgage but fell behind 7 months on the second since the bankruptcy. the holder of the second mortgage (sovereign bank) charged off roughly half the balance last month. my husband obtained employment and we were able to start paying the second mortgage this month but are confused as to what all this means.
Hi marlar!
Welcome to forums!
As your husband will be able to pay off the second mortgage dues presently, it's better to get in touch with the lender and ask him to withdraw the account from collections. Once he does so, you can start making payments towards it.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
As your husband will be able to pay off the second mortgage dues presently, it's better to get in touch with the lender and ask him to withdraw the account from collections. Once he does so, you can start making payments towards it.
Feel free to ask if you've further queries.
Sussane
They charged off my first mortgage and because I live within the city limits of Detroit, their advisors explained to them that it will never be foreclosed on because they'd never recover their money....What does this mean for my home owner's insurance?? Will they pay me if anything happens inside the home? My taxes are current.
If you're paying off the home owner's insurance dues on time, then you would be able to get your homeowner's insurance if something happens to your property. As far as charge off is concerned, the lender has assigned your account to a collection agency who will now collect the dues from you.
I just received a call from collection agency (Zakheim) after my 2nd mortgage was charged off by Citi last month after my application for loan modification was declined.
I owe them about $77K (20% loan) and the collection agency wanted me to pay $1065 for 72 months. My original payment with Citi was about $640/month and I couldn't afford that after losing job and its almost impossible to pay $1065/m. The person from CA said the file will go to court. She used bunch of legal terms and processes like they get my other assets etc. but most of the info was flying over my head.
My primary mortgage (80%) just approved me a loan modification with affordable terms. I just mailed the signed package to them 2 weeks back and I am yet to receive a copy of package with banks signature. All this happened after they served me with foreclosure notice in Dec 2009 and I got an attorney to defend my case. Of course they added about $10-$20K extra to the original loan amount.
This puts me in a really big fix. What will happen next ?
If the CA sues me, whats the best/good/bad scenarios I will be looking at ?
Will CA suing effect the primary mortgage modification ?
What should I do at this time ? Can I negotiate the loan with CA with say like $40-$50k over 6-year period ?
This is in Miami. I cannot sell my property as its worth about half of the amount I owe to lenders. Any advise is really appreciated.
I owe them about $77K (20% loan) and the collection agency wanted me to pay $1065 for 72 months. My original payment with Citi was about $640/month and I couldn't afford that after losing job and its almost impossible to pay $1065/m. The person from CA said the file will go to court. She used bunch of legal terms and processes like they get my other assets etc. but most of the info was flying over my head.
My primary mortgage (80%) just approved me a loan modification with affordable terms. I just mailed the signed package to them 2 weeks back and I am yet to receive a copy of package with banks signature. All this happened after they served me with foreclosure notice in Dec 2009 and I got an attorney to defend my case. Of course they added about $10-$20K extra to the original loan amount.
This puts me in a really big fix. What will happen next ?
If the CA sues me, whats the best/good/bad scenarios I will be looking at ?
Will CA suing effect the primary mortgage modification ?
What should I do at this time ? Can I negotiate the loan with CA with say like $40-$50k over 6-year period ?
This is in Miami. I cannot sell my property as its worth about half of the amount I owe to lenders. Any advise is really appreciated.
Welcome miamikk,
I can understand that the collection agency is threatening you with dire consequences if you are unable to pay the dues. You should maintain your patience and start negotiating with them for a payment plan which is affordable for you to pay. Inform the collection agency(ca) about your financial situation and negotiate for a lower payment plan. If both of you agree for a better payments plan, the CA won't sue you and thus, it won't affect your first mortgage modification process.
I can understand that the collection agency is threatening you with dire consequences if you are unable to pay the dues. You should maintain your patience and start negotiating with them for a payment plan which is affordable for you to pay. Inform the collection agency(ca) about your financial situation and negotiate for a lower payment plan. If both of you agree for a better payments plan, the CA won't sue you and thus, it won't affect your first mortgage modification process.
We got a 2nd loan on the house. We have filed chapter 7 and all has been discharged. We are keeping are house. However the 2nd is a great financial burden. When we got the 2nd we made Approximately 25,000.00 less a year then we do now and we were in quite a bit of consumer debt.
Should they have approved that loan? Is there anything I can do? We have no intentions of giving up are home, but we have just dollars left after bills. Someone mentioned the fair lending act??
Should they have approved that loan? Is there anything I can do? We have no intentions of giving up are home, but we have just dollars left after bills. Someone mentioned the fair lending act??
we are going to do a short sale our home in california. our 2nd trust deed has been charged off by the bank and sold to a collection agency. will we be able to do a short sale.? and can the collection agency get a judgement if my husband is retired. if need be can we file bankruptcy?
hi pattyjo,
the second lender must have gone through your financial situation and then approved the mortgage. thus, i don't think you have much to do in this regard. you can contact the lender and check out if you can get an affordable payment plan to pay off the dues.
hi lynn,
you don't have to file bankruptcy for getting rid of the property. you will be able to short sale the property though your second mortgage has been charged off. the collection agency will contact you and collect their dues. though your husband is retired, i think the collection agency will be able to file a judgment.
thanks
the second lender must have gone through your financial situation and then approved the mortgage. thus, i don't think you have much to do in this regard. you can contact the lender and check out if you can get an affordable payment plan to pay off the dues.
hi lynn,
you don't have to file bankruptcy for getting rid of the property. you will be able to short sale the property though your second mortgage has been charged off. the collection agency will contact you and collect their dues. though your husband is retired, i think the collection agency will be able to file a judgment.
thanks
we are in the process of settling our second mortgage.They have accepted our offer of 12% but say that the account would be charged off. Does that mean that they can still come after us? Is that the same as settled charge off?Are there any other terms that they might agree to?
Thank you
Thank you
I had the same question as the guest above, thanks