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 anonymous
after reading your comments having a home is much more important than good credit statue of limitations sooner or later will keep you from being sued in your state with a collection agency a collection agency doesnt report to a credit bereau a line is on your home and you wont be able to sell your home soon cases will get smaller and courts will catch up foreclosures and garnishments will continue as they have always if your new modification does not allow you save enough money to live a rewarding life I would get past the trial and stay as long as you can prior to the foreclosure If you are able to save money , save as muchas you can and quickly as possible and settle with your second mortgage and the lien will be released to the county then you can stay in the home as long a you want or until your credit is much better and leave it behind you and take advantage of the new great deal in the housing market
the second mortgage may even let you pay as little as $50 dollars a month in good faith as you save for a counter offer to settle with them you will tell them you are waiting for your first mortgage modfication to go into place , as they did not factor in you have a second mortgage because it was reported as charged off and the obama , HARP plan does not account for this being a monthly bill Possible prior to your mod going into a permanent situation you should have your negotiator factor in payments being made the second he cant do anything with the second but he can renegotiate the permanent payment that you can afford You can havethe collection agency send you a bill and usually the bill has back fees on it and shouls show a couple of hundred dollars higher than the original payments I think above said to expect 25%
in fact this may be true but if you have lost income that is not the case they pay 4 0r 5 cents on the dollar try 10% if that above your availability you can try not paying them forever but you will just be renting the house with tax deductable interest . if the modification is low enough and you cant afford to settle i suggest renting out your home for a profit and you your self staying with a family member short term to settle asap and whap a lot of that debt having possible even some equity in your home.
after reading your comments having a home is much more important than good credit statue of limitations sooner or later will keep you from being sued in your state with a collection agency a collection agency doesnt report to a credit bereau a line is on your home and you wont be able to sell your home soon cases will get smaller and courts will catch up foreclosures and garnishments will continue as they have always if your new modification does not allow you save enough money to live a rewarding life I would get past the trial and stay as long as you can prior to the foreclosure If you are able to save money , save as muchas you can and quickly as possible and settle with your second mortgage and the lien will be released to the county then you can stay in the home as long a you want or until your credit is much better and leave it behind you and take advantage of the new great deal in the housing market
the second mortgage may even let you pay as little as $50 dollars a month in good faith as you save for a counter offer to settle with them you will tell them you are waiting for your first mortgage modfication to go into place , as they did not factor in you have a second mortgage because it was reported as charged off and the obama , HARP plan does not account for this being a monthly bill Possible prior to your mod going into a permanent situation you should have your negotiator factor in payments being made the second he cant do anything with the second but he can renegotiate the permanent payment that you can afford You can havethe collection agency send you a bill and usually the bill has back fees on it and shouls show a couple of hundred dollars higher than the original payments I think above said to expect 25%
in fact this may be true but if you have lost income that is not the case they pay 4 0r 5 cents on the dollar try 10% if that above your availability you can try not paying them forever but you will just be renting the house with tax deductable interest . if the modification is low enough and you cant afford to settle i suggest renting out your home for a profit and you your self staying with a family member short term to settle asap and whap a lot of that debt having possible even some equity in your home.
when to and when not to settle the second mortgage
First you probable had the first modified now you are wondering if you have to pay the second its been charged off or its not feasible because your hoe isnt worth as much anymore if your home second was charged off you most likeyy wont get a 1099 form to pay taxes on it if so you will get a satisfied loan if your home has been charged off and its now with a collection agency dont get overly excited about settling although if you can do so , but only converse in writing with them making sure they are eager to deal with you not the other way you will have a settled charge off on your credit report for 7 years , you wil first need to try to negotiate this , the only way to get it off is to speak with the origianl lender and try to sttle with them' most likely they want be able to deal with you any further .
if your intent is to get the debt down a little bit so you can get out of the house , you havent helped your situation on a case of bettering your credit .decide if you want to get rid of negative home debt to get right side up in the house or if your plan is to have better credit
you may have the wrong idea when paying off a collection agency
First you probable had the first modified now you are wondering if you have to pay the second its been charged off or its not feasible because your hoe isnt worth as much anymore if your home second was charged off you most likeyy wont get a 1099 form to pay taxes on it if so you will get a satisfied loan if your home has been charged off and its now with a collection agency dont get overly excited about settling although if you can do so , but only converse in writing with them making sure they are eager to deal with you not the other way you will have a settled charge off on your credit report for 7 years , you wil first need to try to negotiate this , the only way to get it off is to speak with the origianl lender and try to sttle with them' most likely they want be able to deal with you any further .
if your intent is to get the debt down a little bit so you can get out of the house , you havent helped your situation on a case of bettering your credit .decide if you want to get rid of negative home debt to get right side up in the house or if your plan is to have better credit
you may have the wrong idea when paying off a collection agency
Hi thank you for your response. i am the one here in California that is desperate on this collection agency telling me that i have to make the payments of the 97k. my first mortgage has been modified and its a good payment. I had gotten someone to help out for the modification which they did. i now have this problem with the agency and i do understand what your responses are but the person that helped me said that the bank will send a 1099 but maybe not this year but it will probably go for 2010 just so they can try and collect. she said for me to fill a second form which is a 982(1099misc income) once the lender sends me the 1099 it means that it the bank has written off as a business loss with the IRS. they unare unable to attempt to collect on the amount owed on the second mortgage because its take as a buisness loss(it gives them a credit on filing) and it would no longer even be an active account with them they have been telling me tha t i should not pay the collection agency. i am really confused. could someone help me that has gone through this? the collection agenvy says that if i dont make payments i will get wage garnishment, or the IRS will hold my tax returns and do a lien against the house... please help
Hi desperate,
If you owe the debt, the collection agency can come after you and can obtain judgment against you if you do not pay. Once they get a judgment against you, they can garnish your wages and put liens on your other properties. If the debt is cancelled by the bank, they will send you 1099 form. In case they forgive the debt, the forgiven amount will be considered as your taxable income. You may avoid paying taxes on this forgiven debt, if you can prove insolvency. In that case, you can file form 982 and exclude the amount of the cancelled debt from your gross income.
If you owe the debt, the collection agency can come after you and can obtain judgment against you if you do not pay. Once they get a judgment against you, they can garnish your wages and put liens on your other properties. If the debt is cancelled by the bank, they will send you 1099 form. In case they forgive the debt, the forgiven amount will be considered as your taxable income. You may avoid paying taxes on this forgiven debt, if you can prove insolvency. In that case, you can file form 982 and exclude the amount of the cancelled debt from your gross income.
thahks for responding but i dont know what to do because i can barely afford the payment that was just modified and all of the debts that i have i barely have time to make an additional payment. do you know how long it will take before they even garnish wages or goes to lien
desperate
desperate
hi desperate,
it is entirely up to your lender or the collection agency if they will try and get a judgment against you to garnish your wages or put lien on your other properties. if they are going to sue you, it will cost them certain amount of money and also some time. they won't sue you unless they think they can collect the outstanding debt from you. if you cannot continue to make payments on your debts, you can consider the option of filing bankruptcy. if you intend to reorganize your debts, you can file chapter 13, else you can go for bankruptcy chapter 7 and have your debts discharged.
it is entirely up to your lender or the collection agency if they will try and get a judgment against you to garnish your wages or put lien on your other properties. if they are going to sue you, it will cost them certain amount of money and also some time. they won't sue you unless they think they can collect the outstanding debt from you. if you cannot continue to make payments on your debts, you can consider the option of filing bankruptcy. if you intend to reorganize your debts, you can file chapter 13, else you can go for bankruptcy chapter 7 and have your debts discharged.
I had filed personal bankruptcy back in 2007, one of the debts was a BOA business visa which was dismissed in my bankruptcy. I have just received a 1099 from BOA, am I responsible for this charge?
Hi rex,
You do not owe any taxes on the debt that has been discharged through bankruptcy. The mortgage company has cancelled the debt, which is why they have sent you a 1099 form. But you are not entitled to pay any tax on the amount of the cancelled debt. If the debt had not been discharged through bankruptcy, it would have been considered as your taxable income.
You do not owe any taxes on the debt that has been discharged through bankruptcy. The mortgage company has cancelled the debt, which is why they have sent you a 1099 form. But you are not entitled to pay any tax on the amount of the cancelled debt. If the debt had not been discharged through bankruptcy, it would have been considered as your taxable income.
i had filed for bankruptcy before already i would not like to do that again. i will just wait and see what happens...which i hope for the best. The only way to get rid of all this is to WIN the LOTTERY! i hope that comes true one of these days...I thank you everyone who replied back to me. if anyone else knows something else new please send your comments.
my lender just send me a letter that my second mortgage that is already charge off is on a aceleration status and they want $14,000 what is this means?
can someone please help me?
thanks.
can someone please help me?
thanks.
Hi help,
Mortgage acceleration refers to payment of mortgage debt earlier than the scheduled time as mentioned in the agreement. This means you make additional payments and pay off the loan in quick time to save money in interest. However, mortgage agreements often have a clause of acceleration, which allows the lender to call the entire loan amount due even before the loan term ends.
It seems your lender wants to use the clause of acceleration and is demanding a lump sum from you. In case, you have stopped making payments on the second mortgage, contact your lender and check out what exactly they want. If they want you to pay off the loan in full and you cannot do so, ask them to work out a repayment plan so you can pay it off over a certain period of time.
Thanks,
Jerry
Mortgage acceleration refers to payment of mortgage debt earlier than the scheduled time as mentioned in the agreement. This means you make additional payments and pay off the loan in quick time to save money in interest. However, mortgage agreements often have a clause of acceleration, which allows the lender to call the entire loan amount due even before the loan term ends.
It seems your lender wants to use the clause of acceleration and is demanding a lump sum from you. In case, you have stopped making payments on the second mortgage, contact your lender and check out what exactly they want. If they want you to pay off the loan in full and you cannot do so, ask them to work out a repayment plan so you can pay it off over a certain period of time.
Thanks,
Jerry
Hi,
The home was foreclosed on in July and is still reporting on the credit report as of 01-10. The balance is far more than I can afford to pay off is bankruptcy the only way out of this since they are still reporting a year and a half later.
The home was foreclosed on in July and is still reporting on the credit report as of 01-10. The balance is far more than I can afford to pay off is bankruptcy the only way out of this since they are still reporting a year and a half later.
Hi Jessica,
I am doing a short sale in which the first mortgage has accepted a reduced price to sell the duplex and the second mortgage has agreed to acccept $15K instead of $70K. The bank for the second mortgage will not provide any paper documenting their agreement to settle or close the second mortgage until we give them the $15K. This seems risky to me and I think I should demand some sort of legal document so they can't come back for the rest of the $70K on the second. Any suggestions?
I am doing a short sale in which the first mortgage has accepted a reduced price to sell the duplex and the second mortgage has agreed to acccept $15K instead of $70K. The bank for the second mortgage will not provide any paper documenting their agreement to settle or close the second mortgage until we give them the $15K. This seems risky to me and I think I should demand some sort of legal document so they can't come back for the rest of the $70K on the second. Any suggestions?
hi jessica
my second mortgage has ben charged off but we seatle with the ajency and they wave 90% of the loan. and we paid the 10% do we have to paid taxes or the tax reliefe act is going to be applied. thankyou
my second mortgage has ben charged off but we seatle with the ajency and they wave 90% of the loan. and we paid the 10% do we have to paid taxes or the tax reliefe act is going to be applied. thankyou
Hi Nate,
It seems that the second mortgage company does want to collect the rest of the $(70-15) or $55k from you. This is why they do not want to provide you with any agreement to close the second mortgage. In fact, it seems unlikely that they would want to settle the second mortgage debt of $70k for $15k. They would want to come after you for the difference on the loan. If you can negotiate with them and get some assurance in writing from them that they will not come after you for the difference, it would be good. But the lender might not agree to do so.
Hi Salvador,
If your second lender forgives the difference on the second mortgage, you may not have to pay taxes on this forgiven amount. This canceled debt amount can be exempt from taxes under the Mortgage Forgiveness Debt Relief Act. However, to qualify for the tax relief, you must have used the property as your principal residence and the second mortgage must have been used for acquisition, construction or improvement for the home.
Thanks,
Jerry
It seems that the second mortgage company does want to collect the rest of the $(70-15) or $55k from you. This is why they do not want to provide you with any agreement to close the second mortgage. In fact, it seems unlikely that they would want to settle the second mortgage debt of $70k for $15k. They would want to come after you for the difference on the loan. If you can negotiate with them and get some assurance in writing from them that they will not come after you for the difference, it would be good. But the lender might not agree to do so.
Hi Salvador,
If your second lender forgives the difference on the second mortgage, you may not have to pay taxes on this forgiven amount. This canceled debt amount can be exempt from taxes under the Mortgage Forgiveness Debt Relief Act. However, to qualify for the tax relief, you must have used the property as your principal residence and the second mortgage must have been used for acquisition, construction or improvement for the home.
Thanks,
Jerry