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 taharah and steven,
Once your second mortgage lenders charges off the account, he won't come after you for the balance amount. The collection agency will, however, come after you for the dues. Also, a charge off will have negative affects on your credit report. Your lender will be able to let you know whether or not he would be offering you a settled charged off.
Once your second mortgage lenders charges off the account, he won't come after you for the balance amount. The collection agency will, however, come after you for the dues. Also, a charge off will have negative affects on your credit report. Your lender will be able to let you know whether or not he would be offering you a settled charged off.
thanks adonis, really appreciated, I guess I'm not too worried about my credit right now but it would be nice to keep any more negative activity off of it lol
I just got my 2nd mortgae charge off yesterday by citifinancial. I had call today to arrange for a forebearing but they said it had been charge off. Can the CA foreclose on the home if we have equity?
Hi cayey,
The collection agency will contact you for the dues. You will have to negotiate with them and try to lower the payments. This will help you in making the payments in an affordable manner and you will be able to keep the property.
Thanks
The collection agency will contact you for the dues. You will have to negotiate with them and try to lower the payments. This will help you in making the payments in an affordable manner and you will be able to keep the property.
Thanks
Our mortgage servicer, Litton Loan earlier this year, transferred our mortgage to another servicer, who contacted us and we were trying to workout a pay-off of around $8,000, but wasn't able to come with that amount right then due to a loss of income thru job closing, on the credit report that we obtained, it listed the debt as charged off. We were trying to to work this thing out with somewe knew who turned to be un-trustworthy, on or around June 1st, we were contacted by the servicer,Home Solutions LLC, that our mortgage was being transferred back to Litton Loan , Im puzzled is that legal and what can we do? The person that we were trying to work this out got $2,000 from and this thing has gone no where, may have to sue for that
i have two loans and the first lender did a loan mod and approve it the 2 lender well fargo charge me off i was asking for help and they charge me off will my house go in forclour because of the 2nd lender charge off :(
Hi Pastor,
Litton loans can call back the account from collections and they may negotiate with you regarding the dues. You can now deal with Litton and pay off the dues to get rid of the loan. As far as the person who has scammed you is concerned, you can definitely sue him in the law court.
Hi wise,
The second lender has charged off the loan. Thus, the second lender will not be dealing with you any longer. The collection agency may sue you in the law court for the dues but it may not foreclose your property.
Thanks
Litton loans can call back the account from collections and they may negotiate with you regarding the dues. You can now deal with Litton and pay off the dues to get rid of the loan. As far as the person who has scammed you is concerned, you can definitely sue him in the law court.
Hi wise,
The second lender has charged off the loan. Thus, the second lender will not be dealing with you any longer. The collection agency may sue you in the law court for the dues but it may not foreclose your property.
Thanks
I have short sold a home and received a 1099-C which states "forgiveness of Debt"; however, my credit report shows "charge off". Can I get the charge off removed from my credit report since I have a 1099-C or forgiveness of debt? If so, who do I contact?
Hi chrischang,
If the deficient balance has been forgiven by the lender, then "charge off" status should be removed from your credit report. You should dispute the item with the credit bureau and get it removed from your credit report.
If the deficient balance has been forgiven by the lender, then "charge off" status should be removed from your credit report. You should dispute the item with the credit bureau and get it removed from your credit report.
Hi Guest,
As far as I know, you would be able to include your second mortgage charge off in your Chapter 7 bankruptcy filing.
Thanks
As far as I know, you would be able to include your second mortgage charge off in your Chapter 7 bankruptcy filing.
Thanks
My second mortgage was with Beneficial. In February 2010, it was charged off and it is now with Professional Bureau of Collections of Greenwood, CO. The amount the claim is owed is $33k, original loan amount was $20k. They are offering a $16k settlement, which I don't have currently. What can I do? My credit is already poor. I doubt that I can get a loan to cover the $16k settlement offer. What are the chances of being sued? Can they foreclose?
With a poor credit, it won't be possible for you to qualify for a loan. If you've friends or relatives, you can ask them to gift you the money so that you can settle your debts with the collection agency (CA). If you do not pay the dues, the CA can place a lien on your property but for that, it'll have to file a lawsuit against you and get a judgment.
I had a 1st and 2nd mortgage with First Franklin. My house sold short.
I had stopped making payments about 120 pays before the short sale. The 2nd mortgage was transfered to United Guaranty (AIG) and they transfered it to a collection agency called LTD Financial out of Houston. LTD settled for less than full and satisfied the 2nd mortgage and signed my letters as settled and released the liens and debt with proceeds from the sale of the house and the 1st mortgage. I sold the house on 9/11/2008.
Since then, my credit reports say that the 2nd mortgage was "transfered and foreclousre started" with a zero balance. I have tried to contact First Franklin, UG and LTD and then point fingers at each other and say they cannot report this to the credit agencies. They again supplied me with letters that read satisfied and settled.
I am trying to get a new loan and I have rebuilt my credit and have the required money down. But, underwriting says that the 2nd mortgage is the same as a foreclosure in their eyes. I don't know what to do? Help!
I had stopped making payments about 120 pays before the short sale. The 2nd mortgage was transfered to United Guaranty (AIG) and they transfered it to a collection agency called LTD Financial out of Houston. LTD settled for less than full and satisfied the 2nd mortgage and signed my letters as settled and released the liens and debt with proceeds from the sale of the house and the 1st mortgage. I sold the house on 9/11/2008.
Since then, my credit reports say that the 2nd mortgage was "transfered and foreclousre started" with a zero balance. I have tried to contact First Franklin, UG and LTD and then point fingers at each other and say they cannot report this to the credit agencies. They again supplied me with letters that read satisfied and settled.
I am trying to get a new loan and I have rebuilt my credit and have the required money down. But, underwriting says that the 2nd mortgage is the same as a foreclosure in their eyes. I don't know what to do? Help!
You should contact the credit bureaus and negotiate with them to update the credit report. You should provide them with copies of the letters given to you by the lender and the collection agency in this regard.
If your property has been short sold, then it cannot be considered as a foreclosure. Since you filed short sale 2 years back, you should be able to get a mortgage now.
If your property has been short sold, then it cannot be considered as a foreclosure. Since you filed short sale 2 years back, you should be able to get a mortgage now.