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
I live in California, a home was purchased 04/2006. First mortgage was $372k and Second mortgage was $93k. The home foreclosed in 10/2007 and it appears as Foreclosure/paid $0 balance on the credit report and will continue on record until Jan 2014. However, the second mortgage escalated to $99,386 and it appears as charged off as of 12/2007 by GMAC. The last payment on the second mortgage was given on 04/2006. The second mortgage item is scheduled to be on record until Jan 2014. I have never been contacted by a collection agency. Now trying to purchase a home and they are requiring that the credit report shows a ZERO ($0) balance on the second mortgage because wage garnishment, levy or lien can occur in the future. Can a collector still come after me now in 2011? Does the statute of limitations to collect a debt in California (4 years) apply to me? How can I have the credit issue fixed to show a ZERO ($0) balance on the second mortgage?
Hi Guest,
If the SOL period as per your state laws are over, then the collection agency won't be able to take any legal actions against you but they may contact you and harass you for the debt. You may not be able to show a zero balance on your account as you haven't paid off that debt in full.
Thanks
If the SOL period as per your state laws are over, then the collection agency won't be able to take any legal actions against you but they may contact you and harass you for the debt. You may not be able to show a zero balance on your account as you haven't paid off that debt in full.
Thanks
got a piggy back loan when we bought our house. the second lender is offering us a settlement and we're not sure if we should try to take the offer. we have an excellent payment history with lender, we are always early on payments and always pay almost double payments. we got the loan 4 yrs ago for 60k, we owe 55,118 now at 5.25% and the settlement amount being offered is 23,750. of course we would have get a loan to pay the settlement amount, and we're wondering if this would hurt our credit at all and if we would be taxed on the remainder of the original loan. any advise?
Hi anon!
Welcome to forums!
If you settle your second mortgage, it might have a negative affect on your credit report and may even lower your credit score. As far as the forgiven debt is concerned, you may be liable for paying taxes on it.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you settle your second mortgage, it might have a negative affect on your credit report and may even lower your credit score. As far as the forgiven debt is concerned, you may be liable for paying taxes on it.
Feel free to ask if you've further queries.
Sussane
I have a second mortgage that I have not been able to pay for quite awhile. The loan has gone into collections, the collection agency has offered me to settle for $.50 on the dollar. While that sounds good, I don't have the kind of money needed to settle. What are my options? Is the collection agency able to give me a better deal that I can afford? I live in Florida...
Hi Berto!
Welcome to forums!
Your query has been replied to in the given page:
http://www.mortgagefit.com/Mortgage-Basics/Second-mortgage-advice.html
Please take a look at it. I hope it will help you.
Sussane
Welcome to forums!
Your query has been replied to in the given page:
http://www.mortgagefit.com/Mortgage-Basics/Second-mortgage-advice.html
Please take a look at it. I hope it will help you.
Sussane
i got a 1099-c im on ssi was in out of hospital with heart,and other problems had no other income but daughters ssi from late wife does this mean i have to move.
Hi bmac,
As you have received a 1099-c, it means that your debts have been forgiven by the lender/creditor. However, if your property has been foreclosed by the lender, then you will have to leave the property.
As you have received a 1099-c, it means that your debts have been forgiven by the lender/creditor. However, if your property has been foreclosed by the lender, then you will have to leave the property.
When my house foreclosed 2 years ago, I had both a 1st and 2nd mortgage with Bank of America.
Even through my financial hardship, I never stopped paying the 2nd... until the foreclosure was finalized. And only then because BOFA suddenly closed the account to payments and would no longer allow me to pay!
They sent me a letter shortly after that offered a settlement of 33% basically. However, at the time I did not have the funds to pay this in a lump sum so I did nothing.
Now the account shows as a 'charge off' on my credit report but I'm pretty sure it has been sold to a collector. There is no record on any of my credit reports of who holds this debt now but about a year ago I received communication from a debt collector asking for payment. I did nothing about that either, as I did not have the money at the time. And I have since misplaced that paperwork.
I'm in somewhat of a better place now financially and I'm working towards the goal of owning a home again in the next few years so I want to clean up my credit as best I can.
Any clue how I'd go about finding out who holds this loan now? Can I still bargain with BOFA to settle it or perhaps they might know who holds the loan now?
I have settled my other collections account and one belonging to my husband so, other than paying down some debt I have, this is the big issue on my credit report at the moment.
Help?
Even through my financial hardship, I never stopped paying the 2nd... until the foreclosure was finalized. And only then because BOFA suddenly closed the account to payments and would no longer allow me to pay!
They sent me a letter shortly after that offered a settlement of 33% basically. However, at the time I did not have the funds to pay this in a lump sum so I did nothing.
Now the account shows as a 'charge off' on my credit report but I'm pretty sure it has been sold to a collector. There is no record on any of my credit reports of who holds this debt now but about a year ago I received communication from a debt collector asking for payment. I did nothing about that either, as I did not have the money at the time. And I have since misplaced that paperwork.
I'm in somewhat of a better place now financially and I'm working towards the goal of owning a home again in the next few years so I want to clean up my credit as best I can.
Any clue how I'd go about finding out who holds this loan now? Can I still bargain with BOFA to settle it or perhaps they might know who holds the loan now?
I have settled my other collections account and one belonging to my husband so, other than paying down some debt I have, this is the big issue on my credit report at the moment.
Help?
Hi Christine,
You should check your credit report in order to find out who owns the account. Whether it is owned by a creditor or a collection agency, the account will be reported to your credit report. Once you know the details, you can try and settle the debts with them and get rid of the account.
Thanks
You should check your credit report in order to find out who owns the account. Whether it is owned by a creditor or a collection agency, the account will be reported to your credit report. Once you know the details, you can try and settle the debts with them and get rid of the account.
Thanks
I have not got a form from BOA 1099- on a short sale-records say Charge Off. Will I need to pay taxes,and also should I let the IRS know about this???I sold the the home in Nov.2011 short sale,my papers say Charge Off
Hi L Osborne!
Welcome to forums!
You won't have to pay taxes. Rather, the collection agency will come after you to recover the debts. You can set up a payment plan with them and get rid of the debts.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You won't have to pay taxes. Rather, the collection agency will come after you to recover the debts. You can set up a payment plan with them and get rid of the debts.
Feel free to ask if you've further queries.
Sussane
L Osborne, you had better check with the IRS concerning your having received a 1099 from your lender. A 1099 form is used to report income, and you don't want the IRS breathing down your neck for having failed to report income based on the hearsay of a third party.
You can go online at irs.gov and input your question on their site, or you can call them also. Their phone number is, of course, on their website.
You can go online at irs.gov and input your question on their site, or you can call them also. Their phone number is, of course, on their website.
Help..:(...I lost both my parents. The home was into foreclosure so i tired to short sell it. The home was quit claimed to me and recorded properly in the state of Florida. So I am owner of record. If I short sell it do I still need approval from the second ( Chase) which says they charged it off? Will the collection agency go against me...or the new owner of the property? The first is being satisfied in full by short sale.
Can it affect my credit? I was never on the note. THANKS SO MUCH. I AM A WRECK!!
Can it affect my credit? I was never on the note. THANKS SO MUCH. I AM A WRECK!!
hi lorraine!
welcome to forums!
as per the rules, you need to get the permission of the second mortgage lender in order to get your short sale approved. however, as it has been charged off, your first lender will have to give their permission for short sale. as far as the charge off is concerned, you should pay it off on your own.
feel free to ask if you've further queries.
sussane
welcome to forums!
as per the rules, you need to get the permission of the second mortgage lender in order to get your short sale approved. however, as it has been charged off, your first lender will have to give their permission for short sale. as far as the charge off is concerned, you should pay it off on your own.
feel free to ask if you've further queries.
sussane