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
Our 2nd mortgage bought out our 1st mortgage and then sold the property but didn't file any money owed in the 3 month time line for Idaho statutes what is our next step to get this removed.
Welcome doc,
If the property is sold off, then you are in no way liable for paying anything except the deficient balance to the second lender. Check out with your second lender whether or not you need to pay the deficient balance. However, if the property has been foreclosed then, it will remain in your credit report for the next 7 years.
If the property is sold off, then you are in no way liable for paying anything except the deficient balance to the second lender. Check out with your second lender whether or not you need to pay the deficient balance. However, if the property has been foreclosed then, it will remain in your credit report for the next 7 years.
Hi, my 2nd mortgage was charged off. The account was sold to a Collection Agency (CA). The CA keeps wanting some type of a monthly payment, but is not willing to offer a settlement in writing. The Bank (Wells Fargo) has indicated that they may be willing to accept 10%. While I have told this to the CA, and I have sent a letter in writing offering the 10%, the CA keeps saying that this is not enough, and that I need to start sending them monthly payments. Why would the CA not consider my settlement offer, and why does the CA keep insisting that I send them a monthly payment?
Hi anonymous,
It is the discretion of CA whether or not he will consider your request for settlement. If the bank has agreed to accept 10% of the owed amount, then you should contact the lender and ask them to withdraw the account from collections. Once they do so, then you will be able to make the payments to the bank and sort out the matter.
Thanks
It is the discretion of CA whether or not he will consider your request for settlement. If the bank has agreed to accept 10% of the owed amount, then you should contact the lender and ask them to withdraw the account from collections. Once they do so, then you will be able to make the payments to the bank and sort out the matter.
Thanks
Short sale completed in NJ in Jan. 2011. Wells held both mortgages. First is closed. 2nd got $17,000 at closing but gave $160,000 balance to a CA. It says Wells is still holding balance. Wells charged off $160,000 and wrote off $177,000. I am very confused. If Wells pursues a court judgement I will have to file bankruptcy and they get zero. If I had let banks foreclose 2nd would have got zero and I would have filed bankruptcy. Everyone said that Wells would not pursue deficiency. That was wrong. Thoughts please? I have 30 days to respond to CA. They want $170,000. We got less assets now than January. No jobs, etc. What do you recommend?
i have a second mortgage in virginia that has supposably been charged off we have made a year of continued payments of $1500.00 almost totaling $18000.00 so far still owe another month but just received another letter from another collection company trying to get us to pay $45000.00 which we do not have and now we do not know what to do. the orginial collection agency was suppose to receive another payment at the end of this month, so we are confused now. should we contact the original company to which carried the loan in the first place?
Hi Bennett,
If you can manage to pay the CA, then I will suggest you to negotiate with them for an affordable payment plan and get rid of the debts. If you're unable to pay off the debts, then you may have to file bankruptcy.
Welcome Guest,
You should ask the new collection agency, from whom you've received the collection notice, to validate your debt. Unless they validate your debt, you shouldn't make any payments to them.
If you can manage to pay the CA, then I will suggest you to negotiate with them for an affordable payment plan and get rid of the debts. If you're unable to pay off the debts, then you may have to file bankruptcy.
Welcome Guest,
You should ask the new collection agency, from whom you've received the collection notice, to validate your debt. Unless they validate your debt, you shouldn't make any payments to them.
I suffered a short sale, and renegotiated home improvement loan on second with Keybank, I paid them 2K to release the lien on the house, and agreed to keep making our payments... they agreed but sent the loan to recovery dept and now it appears on credit report as charged off as bad debt.....Is there any way to get this removed without having to pay the balance in full? I cant qualify for any loan with this on my credit report...I dont know what to do....Thank you in advance for any advice.
Welcome jkat,
If you have a written agreement regarding your arrangement with the lender for payments, then you should contact the lender and dispute the matter.
If you have a written agreement regarding your arrangement with the lender for payments, then you should contact the lender and dispute the matter.
I sold my home 5 years ago and carried a $20,000 second. Present owners lost job and the bbank received a short sale offer and they offered us $2,000 to release our 2nd. Can I claim the loss on my taxes? If not what happens to the cost basis of the old home since I rolled the gain into my new home?
Hi PhilG!
Welcome to forums!
You will have to contact a CPA or a tax adviser and take his/her opinion in order to know whether or not you'll be able to claim the loss on your taxes.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You will have to contact a CPA or a tax adviser and take his/her opinion in order to know whether or not you'll be able to claim the loss on your taxes.
Feel free to ask if you've further queries.
Sussane
Phil, it certainly makes sense that you'd be able to write off your loss, but take Sussane's advice and speak with a tax advisor as to how to handle the situation.
A tax advisor can also address your concern about the cost basis of the old home as well.
Don't forget, also, that the IRS is also available to deliver answers to your questions
A tax advisor can also address your concern about the cost basis of the old home as well.
Don't forget, also, that the IRS is also available to deliver answers to your questions
My house was foreclosed on by my first lender and I am currently in the redemption periord. Can I sell my home during the redeption periord for the balance owed to the first and if so what happened to the second. Or do I have to payoff the second also at this time?
Our chapter 7 discharge is in 2 and 1/2 weeks. During our filing around 2 weeks ago, our 2nd mortgage became a "charge off." Is it possible to include this debt in the impeding discharge?
Anonymous, anytime you can sell your home it's a benefit that would allow you to pay off your first mortgage. However, an inability to pay off your second mortgagee with proceeds from the sale would invalidate the title you'd be trying to pass along to the new buyer. You cannot deliver clear title unless any and all liens are eliminated. It's a great idea you had, but far more complicated than you might have first assumed.
Of course, if you happen to sell for a sufficient amount, you can certainly pay off any and all liens, hopefully, and pass clear title along to the buyer.
Willy - your question is really something that ought to be asked of your bankruptcy lawyer and/or the trustee in the bankruptcy.
Of course, if you happen to sell for a sufficient amount, you can certainly pay off any and all liens, hopefully, and pass clear title along to the buyer.
Willy - your question is really something that ought to be asked of your bankruptcy lawyer and/or the trustee in the bankruptcy.