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
to perplexed,
generally, a foreclosure remains on your credit report for about 7 years. thus, if your home was foreclosed last july, you cannot have the foreclosure removed from your credit immediately. however, although it remains on your credit for 7 years, its negative impact diminishes with time. a 5 year old foreclosure does not hurt your credit as much as a 2 year foreclosure does.
filing bankruptcy will not help you in this situation. the foreclosure took place before you filed bankruptcy. hence, the bankruptcy will not remove the foreclosure from your credit report. if you had surrendered your home while in bankruptcy, the foreclosure would not have affected your credit. but even then, the bankruptcy would have stayed on your credit report for 7 years.
generally, a foreclosure remains on your credit report for about 7 years. thus, if your home was foreclosed last july, you cannot have the foreclosure removed from your credit immediately. however, although it remains on your credit for 7 years, its negative impact diminishes with time. a 5 year old foreclosure does not hurt your credit as much as a 2 year foreclosure does.
filing bankruptcy will not help you in this situation. the foreclosure took place before you filed bankruptcy. hence, the bankruptcy will not remove the foreclosure from your credit report. if you had surrendered your home while in bankruptcy, the foreclosure would not have affected your credit. but even then, the bankruptcy would have stayed on your credit report for 7 years.
well i dont thing they forgive tha debt, they charged it off. and we had to sattler with what they called recovery department. so we end it up payng only 10% of the total amount. but i dont want to have to pay taxes on the other 90%. what you think? thanks
Hi salvador,
If the mortgage company has charged off the debt, it means they will report it as their loss for accounting reasons. They can either send it to their collections department or can sell it off to a collection agency. In your case, it seems they sent it to their own collections department. Since you have settled the debt by paying 10%, the rest of the 90% of the debt will be considered as your taxable income. But, as Jerry mentioned, as per the Mortgage Forgiveness Debt Relief Act, you can claim tax relief on this forgiven debt amount.
If the mortgage company has charged off the debt, it means they will report it as their loss for accounting reasons. They can either send it to their collections department or can sell it off to a collection agency. In your case, it seems they sent it to their own collections department. Since you have settled the debt by paying 10%, the rest of the 90% of the debt will be considered as your taxable income. But, as Jerry mentioned, as per the Mortgage Forgiveness Debt Relief Act, you can claim tax relief on this forgiven debt amount.
my house has one mtg on it which i got way behind on and applied for a modification but after waiting 6 months it was denied..insted of forclosing on the home because of the drop in value the bank decided to charge off the interest and told me i can make pmt of what i can afford towards the principal and when te market comes back up i will have to a(refinance w/them or b) finance thru another company for the balannce. what happens w/the charge off? will they take me to court and garnishe my wages? i live in florida and the bank said it can take prob 10 yrs b4 the value of the homes gpo up here. should i do this
thank you jerry, thankyou jenkin7 you been of a lot of help
Hi Danette,
Your mortgage company has charged off the interest. It does not seem like they've charged off the entire loan. So, they will not be collecting the interest on the loan and whatever you pay them will be applied to the mortgage principal. So, I don't think they will obtain any judgment against you or garnish your wages. However, ask them to give it to you in writing that they will charge off the interest for a specific period of time and will not come after you with a judgment.
Your mortgage company has charged off the interest. It does not seem like they've charged off the entire loan. So, they will not be collecting the interest on the loan and whatever you pay them will be applied to the mortgage principal. So, I don't think they will obtain any judgment against you or garnish your wages. However, ask them to give it to you in writing that they will charge off the interest for a specific period of time and will not come after you with a judgment.
I am in the middle of a loan modification for my 1st mortgage, meanwhile my 2nd mortgage appears to be charged off. Being that I owe much more on the house than its value, I have the following questions:
If my 2nd is charged off...does that mean a collection agency will try and collect the debt?
If that is the case, if I make a settlement deal with them and pay it off - that means I will only owe the 1st mortgage on the house? they will remove the lien?
I wouldn't want to pay off the 2nd only to try and sell later and come to find out there is still a lien on the property...
When they try to settle do they typically offer a fair deal or do they try to get the whole amount back?
Is a 2nd mortgage charge off always sent to a collector or will they just leave it as is and you keep a lien on your property?
Thanking you in advance for your help in this matter.
If my 2nd is charged off...does that mean a collection agency will try and collect the debt?
If that is the case, if I make a settlement deal with them and pay it off - that means I will only owe the 1st mortgage on the house? they will remove the lien?
I wouldn't want to pay off the 2nd only to try and sell later and come to find out there is still a lien on the property...
When they try to settle do they typically offer a fair deal or do they try to get the whole amount back?
Is a 2nd mortgage charge off always sent to a collector or will they just leave it as is and you keep a lien on your property?
Thanking you in advance for your help in this matter.
my boyfriend is filing bankruptcy due to losing his job. he has a first mortgage of 200,000 and a 2nd mtg. for 220,000. the fair market value of the home is between 300,000 - 340,000. he has not paid the 2nd mtg in 10 months & it is now in collections. can he discharge the 2nd in the bankruptcy even though the home is worth more than balance of the 1st mortgage?
How does the charge-off work when it is on the 1st mortgage. All the information I find speaks to charge-offs on the 2nd mortgage, and not the first.
hi need to know,
in most of the cases, it is the second mortgage holder who charges off the mortgage. the first lender has a first lien on the property and if you default on the loan, they can foreclose on the property and recover the loan amount. but in cases where the property value has gone down and the second mortgage cannot be recovered from the sale proceeds, the lender charges off the second mortgage. however, in case the first mortgage or the deficiency on the first mortgage is charged off, the lender can either forgive the mortgage balance or can also send it to collections.
hi maria,
if your boyfriend files bankruptcy chapter 7 and the second mortgage is discharged, he will not be personally liable for it. but, this will not remove the mortgage lien from the property. thus, they will always have the right to foreclose the property and sell it off to satisfy their mortgage lien.
in most of the cases, it is the second mortgage holder who charges off the mortgage. the first lender has a first lien on the property and if you default on the loan, they can foreclose on the property and recover the loan amount. but in cases where the property value has gone down and the second mortgage cannot be recovered from the sale proceeds, the lender charges off the second mortgage. however, in case the first mortgage or the deficiency on the first mortgage is charged off, the lender can either forgive the mortgage balance or can also send it to collections.
hi maria,
if your boyfriend files bankruptcy chapter 7 and the second mortgage is discharged, he will not be personally liable for it. but, this will not remove the mortgage lien from the property. thus, they will always have the right to foreclose the property and sell it off to satisfy their mortgage lien.
Hi Lani,
If the lender has charged off your second mortgage, he can sell it off to a collection agency. If this is what your lender has done, then a collection agency can come after you to recover the debt from you. The lender may not always send the charged-off debt to a collection agency. They may leave the lien on the property as it is and the try and collect it when the home is sold off.
If the debt is sent to a collection agency, you make a settlement with them and pay it off, the lien would be removed from the property. However, you need to negotiate with them properly and in order to make sure they do remove the lien once the debt is paid off, make some sort of written agreement with them. Do not believe in any verbal promise or agreement.
Thanks,
Jerry
If the lender has charged off your second mortgage, he can sell it off to a collection agency. If this is what your lender has done, then a collection agency can come after you to recover the debt from you. The lender may not always send the charged-off debt to a collection agency. They may leave the lien on the property as it is and the try and collect it when the home is sold off.
If the debt is sent to a collection agency, you make a settlement with them and pay it off, the lien would be removed from the property. However, you need to negotiate with them properly and in order to make sure they do remove the lien once the debt is paid off, make some sort of written agreement with them. Do not believe in any verbal promise or agreement.
Thanks,
Jerry
I did a short sale in 2009 with a 1st and 2nd mortgage. I am receiving a 1099c from the 1st (the bigger cancelled debt) but not from the 2nd. Those this mean that they are still coming after me for the difference? I looked up my credit report and found conflicting posting for this account. In account status it said: Account settled baloon payment due jan 2022 0 written off. but under Creditor comments it said: Account settled Legally paid off for less. I am comfused and need help
i successfully completed a short sale of my primary residence in march of 2009. my first mortgage company settled for less than the amount due and sent a 1099-c for the difference- which i expected, and shouldn't have to pay taxes on due to the mortgage debt forgiveness act of 2007. the second mortgage company agreed to release the mortgage for a certain dollar amount, which they received. i have yet to receive a 1099-c from the second, and it is now tax time. also, my first mortgage is reporting as legally paid in full for less than full balance and my second is showing as closed, but as a charge off. my concerns are as follows: can the second mortgage company file a deficiency judgment even though i have a letter stating they would release the mortgage? can my second mortgage company still sell the "charged off" debt to zombie-debt collection agencies? can my second mortgage company send me a 1099-c, and if so, how can i convince them to do so? i believe i am protected from tax ramifications from the mortgage debt forgiveness act of 2007, so i think i would prefer to see a 1099-c and move on. since completing my short sale i have gotten married and am now living in a rent-to-own situation, but will need to refinance within three years and don't want a mortgage charge off or worse yet- nasty collections folks banging down our doors. any advice anyone can give would be extremely helpful. thank you!
concerned in ohio
concerned in ohio
I am now in a payment
My second mortgage is in the collection agency, I have a payment plan with them and I am current. I had to let my transportation go, in order to keep my house. Now no one will let me have a car loan, what can I do?
My second mortgage is in the collection agency, I have a payment plan with them and I am current. I had to let my transportation go, in order to keep my house. Now no one will let me have a car loan, what can I do?