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
My lender charged off my 2nd mortgage (not purchase money) and I received a 1099C for the amount of the canceled debt. I understand that I will have to pay taxes on the canceled debt. My question is... can the lender sell the 2nd to a CA and can they come after me?
Hi wcbpro,
The lender can sell off the second mortgage to the collection agency (CA) and the CA can come after you for the debts.
The lender can sell off the second mortgage to the collection agency (CA) and the CA can come after you for the debts.
My question about the 1099C bothered me so much that I actually talked with an atty. He told me that my 2nd mortgage lender will not sell the debt to a CA. Here's why. When they "charge off" the 2nd mortgage they receive a tax deduction for a bad debt and therefore, they have "benefited" from the charge off. They can not sell the 2nd mortgage to a CA because they would receive "income" from the sale and therefore "negate" the tax deduction they got from the IRS. In other words, the IRS doesn't allow them to get a tax deduction and then receive income from the same bad debt (wow, this is actually beginning to make sense). However, if the mortgage company did not include the bad debt on their tax return (which, according to the atty., they never do because they are part of a large "pool" of bad debts) then they could sell it to a CA.
Okay, that covers the mortgage company but what about the taxes I have to pay on the canceled debt. He told me that this is the other reason why the mortgage company can't sell the bad debt. He told me that because I have essentially been "penalized" by paying taxes on the canceled debt which is classified as ordinary income. In other words, if you pay the taxes on the debt you are "relieved" from paying the debt.
He also told me that it's sort of like an "agreement" with the mortgage company. In essence, you've agreed to pay taxes on the canceled debt and you "benefit" because you don't pay the full amount of the debt. The mortgage company "benefits" from the tax deduction.
He asked me if my 1099C clearly stated that the debt was "canceled" and I told him it did. He said "canceled" means just that. The debt has been canceled and no longer exists.
Obviously I was glad to hear what this atty. had to say and I will now sleep better!
Okay, that covers the mortgage company but what about the taxes I have to pay on the canceled debt. He told me that this is the other reason why the mortgage company can't sell the bad debt. He told me that because I have essentially been "penalized" by paying taxes on the canceled debt which is classified as ordinary income. In other words, if you pay the taxes on the debt you are "relieved" from paying the debt.
He also told me that it's sort of like an "agreement" with the mortgage company. In essence, you've agreed to pay taxes on the canceled debt and you "benefit" because you don't pay the full amount of the debt. The mortgage company "benefits" from the tax deduction.
He asked me if my 1099C clearly stated that the debt was "canceled" and I told him it did. He said "canceled" means just that. The debt has been canceled and no longer exists.
Obviously I was glad to hear what this atty. had to say and I will now sleep better!
Posted here was the following info:
•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.
If the second lien is not removed, how is the statute of limitations relevant here? Can't the original lien holder continue to pursue the debt until the lien is released regardless of the statute of limitations?
•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.
If the second lien is not removed, how is the statute of limitations relevant here? Can't the original lien holder continue to pursue the debt until the lien is released regardless of the statute of limitations?
hello,
just wanted to aware everybody that in the state of ca the law doesn't allow the bank to continue charging you for the second loan either if you never did anything (refinance or other) to your inicial loans. i was told here i needed to pay. i went to talk to a financial advisor and to an attorney. i contacted the bank myself over the phone and they informed me that actually they had just received a notification saying that in ca they cannot proceed therefore they did a write off. i have a $0 balance now :)
i jut post this to inform everybody here. i believe the law that protects people in ca is 408b
good luck every body!
just wanted to aware everybody that in the state of ca the law doesn't allow the bank to continue charging you for the second loan either if you never did anything (refinance or other) to your inicial loans. i was told here i needed to pay. i went to talk to a financial advisor and to an attorney. i contacted the bank myself over the phone and they informed me that actually they had just received a notification saying that in ca they cannot proceed therefore they did a write off. i have a $0 balance now :)
i jut post this to inform everybody here. i believe the law that protects people in ca is 408b
good luck every body!
Thanks for sharing the info! :-)
Our Chase 2nd Mortgage has been charge off and I have been dealing with a man who said he's from a recovery depat of Chase. He gave me a settlement figure. Is it right for him to ask for our last 2 paystubs, last 2 years of our W2 and bank statements? Also, he only works through fax, can't provide us with a physical address and everything is through phone. No correspondence etc. He only calls and all our conversation is through telephone. I didn't think I should proceed with how he works with us. Please Advise.
Hi Guest!
Welcome to forums!
You will get a settlement offer based on your financial hardship. Unless the creditor checks your paystubs, W2s, bank statements etc., he won't offer you a good settlement offer.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You will get a settlement offer based on your financial hardship. Unless the creditor checks your paystubs, W2s, bank statements etc., he won't offer you a good settlement offer.
Feel free to ask if you've further queries.
Sussane
A CA is telling me that they are collecting for Chase on a 2nd mtg that Chase charged off. 1) on my credit report, the CA shows as the owner and not Chase. The CA says that any payments I make go to chase but all of the payments I've made so far on the payment plan with the CA 'magically' did not reduce the balance because of 'interest and penalties' the CA says. So, 2) it seems the CA is not giving the payments to Chase because they say the balance is more than what it was when Chase charged off the 2nd mtg. Is this correct or am I missing something. The amount they want to settle is more than I will ever have at one time ($40k) so (3)if they don't accept my offer of $15k K is my only other option Chapt 7 or 11? (4)Is the CA violating any Fair Credit laws in saying the balance is more than the charged of amount due to 'interest /penalties'? I've been making payments since they first contacted me. I think BK will get me out from under this cheaper than $40k. I've been trying to work with the CA to ultimately settle but the fact that they have eaten up all the payments I've made and want way more than I can get together now makes me think I just need to eat the fact that I will have to have a BK on my record.
Hi TCINLA,
There are chances that the CA is not paying Chase. You should have a word with the CA in order to sort out the matter. If you find that you're unable to settle your debts with your CA, then you may go ahead for filing Chapter 7 or Chapter 13.
There are chances that the CA is not paying Chase. You should have a word with the CA in order to sort out the matter. If you find that you're unable to settle your debts with your CA, then you may go ahead for filing Chapter 7 or Chapter 13.
i was applying for a loan modification and recently found out my loan was charged off, do this mean i have lost my home, and what can i do, i am able to pay what is behind
Hi bab,
You haven't lost the home yet. Your lender is no more interested in collecting the debts from you as you were not paying on time. So, the lender has charged off the account and assigned or sold it off to a collection agency. It is the collection agency who will contact you for the payments.
You haven't lost the home yet. Your lender is no more interested in collecting the debts from you as you were not paying on time. So, the lender has charged off the account and assigned or sold it off to a collection agency. It is the collection agency who will contact you for the payments.
Our 2nd mortage was discharged in our bankruptcy but the bank turned over the loan the an attorney for collections, can they do this? I know that the bank still has a lien on the property when will the lien be lifted? We still have the first mortgage with the same bank and are in the process of a modification will the issue wit the 2nd Mortgage hurt our modification?
Hi GM!
Welcome to forums!
The bank can sell off the loan to a collection agency. However, if the loan has been discharged, then you won't be personally liable for paying it. You may ask the lender to call back the account from collections and then you can negotiate for a loan modification on it as well.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
The bank can sell off the loan to a collection agency. However, if the loan has been discharged, then you won't be personally liable for paying it. You may ask the lender to call back the account from collections and then you can negotiate for a loan modification on it as well.
Feel free to ask if you've further queries.
Sussane