Posted on: 17th Sep, 2008 12:30am
If you're in financial hardship and you're not paying second mortgage for 150-180 days from the due date, the lender may foreclose your property or file a lawsuit and seize your personal assets. Read through the section below and find out what happens if you stop paying second mortgage.
What happens if I stop paying second mortgage?
If you're not paying your second mortgage, and your home is upside down (combined balance on 1st and 2nd loan exceeds the home value), the lender may not file a foreclosure. That's because he'll have to pay off the first loan before he intends to retrieve the money he has invested on the 2nd loan.
However, even if the second lender forecloses and sells the home for less than the balance on 1st and 2nd loans, the law may not require you to pay the difference or deficiency balance provided the second mortgage is a non-recourse loan. Moreover, certain states have anti-deficiency laws which prevent one from paying the deficient amount provided the second mortgage (such as the 20% of an 80/20 loan) is used to purchase a primary residence.
However, if the second mortgage is a recourse loan, and your state doesn't follow the anti-deficiency laws, the deficiency balance needs to be paid off. In case you don't pay the deficiency or if the lender doesn't foreclose at all, here's what may happen:
However, even if the second lender forecloses and sells the home for less than the balance on 1st and 2nd loans, the law may not require you to pay the difference or deficiency balance provided the second mortgage is a non-recourse loan. Moreover, certain states have anti-deficiency laws which prevent one from paying the deficient amount provided the second mortgage (such as the 20% of an 80/20 loan) is used to purchase a primary residence.
However, if the second mortgage is a recourse loan, and your state doesn't follow the anti-deficiency laws, the deficiency balance needs to be paid off. In case you don't pay the deficiency or if the lender doesn't foreclose at all, here's what may happen:
- Judgment/garnishment: The lender may file a lawsuit in the local court and get a judgment order to collect the unpaid balance. He can come after your assets such as bank account funds. The lender may have your wages garnished. Wage garnishment is a legal process in which an individual's earnings are partly or wholly withheld by the employer (as per court order) for repayment of debt.
- Charge-off: The lender may issue a second mortgage charge off and assign or sell off your debt to a collection agency (CA). The agency will then try to collect the loan payments by all means. If you don't make any payment, here's what the CA can do:
- Harassing calls/letters: The collection agency is likely to harass you with repeated phone calls or payment notices/letters. They may even call you at odd hours and disturb you at your workplace, though such practices are against the Fair Debt Collection Practices Act (law which governs the practices of CAs).
- CA may file lawsuit: The CA may even sue you thereby leading you to legal hassles. They may even get a judgment order from the court and go for wage garnishment or seize your bank accounts.
However, if your second mortgage debt is well past the Statute of Limitation (SOL), the collection agency cannot file a lawsuit. Even if they threaten to sue you after the SOL is over, send a cease and desist letter stating that your debt has crossed the SOL, so they shouldn't contact you any more. Still if they harass you for payments, file a complaint with the FTC or State Attorney General.
What to do if I can't pay second loan
Once your home is sold off at a foreclosure auction, the second mortgage debt or the deficiency balance on it will be considered as an unsecured loan which you can pay off in monthly installments. In case you can't afford to pay the deficiency balance in full, you may negotiate a settlement with the lender or the collection agency to whom the lender may have assigned/sold off your debt.
Paying your second mortgage will help you minimize the chances of getting hit with negative remarks on your credit report. You can thus avoid trashing your credit score and improve your chances of getting loans in future.
Paying your second mortgage will help you minimize the chances of getting hit with negative remarks on your credit report. You can thus avoid trashing your credit score and improve your chances of getting loans in future.
i have a 1st & 2nd mtg and i have requested a short sale. i am able to make my 1st mtg payment but i do not have the funds to make my 2nd mtg pymt. if i stop paying second mortgage what happens? can the 2nd lender foreclose on my house? and if not, what happens to the 2nd loan? if they charge off & put a lien on my house, then i will never be able to sale it because i owe more than the house it worth? any advice? also, if they charge off & put a lien on my house, can i then bk it?
To Ed,
Though your loan has been discharged by the bankruptcy court, the second lender still holds the lien on the property. If you want to retain the property, then you will have to negotiate with your second lender. The lender has the rights to foreclose the property if it does not receive its dues.
To Sarah,
As far as I know, in case of Chapter 7, you'll have to list all your assets and debts. It is quite surprising that you did not list the property and the mortgage in your bankruptcy filing. You've mentioned that both the loans have been charged off by the lender. In that case, the lender will not be able to collect the dues from you. You'll have to negotiate with the collection agency and check out if they can forgive a portion of the debts.
Though your loan has been discharged by the bankruptcy court, the second lender still holds the lien on the property. If you want to retain the property, then you will have to negotiate with your second lender. The lender has the rights to foreclose the property if it does not receive its dues.
To Sarah,
As far as I know, in case of Chapter 7, you'll have to list all your assets and debts. It is quite surprising that you did not list the property and the mortgage in your bankruptcy filing. You've mentioned that both the loans have been charged off by the lender. In that case, the lender will not be able to collect the dues from you. You'll have to negotiate with the collection agency and check out if they can forgive a portion of the debts.
Hello I have a 1st & 2nd with the same company & I can't afford to pay the 2nd loan. what happens they just modified my first @ 31% of my income & not including my second. I haven't paid the second since march..
Hi ezekial,
The second lender will have the rights to take actions against you if you do not pay the loan. The second lender can charge off the loan and a collection agency will in turn collect the dues from you. To know more about second mortgage charge off, take a look at the given page:
http://www.mortgagefit.com/know-how/secondloanchargeoff.html
Take care.
The second lender will have the rights to take actions against you if you do not pay the loan. The second lender can charge off the loan and a collection agency will in turn collect the dues from you. To know more about second mortgage charge off, take a look at the given page:
http://www.mortgagefit.com/know-how/secondloanchargeoff.html
Take care.
Does this make it easier for them to forclose on me if I stop making my second?
Whether you default on your first or your second mortgage, the lenders have the rights to foreclose the property. If you stop paying the second mortgage, then there are high chances that the lender would charge off the account. A collection agency will in turn collect the dues from you.
I have the following mtg 1st 500 Indymac and 2nd 145 with Chase. Our house is underwater, current value of about 290. I'm current on both payments, but it seems like I'm throwing all these monies away every month. The banks won't talk to me about refinancing or modifying the loans to it's current value. At this point, I would just like to get out of the house, don't really care for my credit score but I have some money in the savings which I'm worried about and not yet in financial trouble.
Hi,
You can apply for a deed in lieu of foreclosure with your lender and try to get rid of the property. However, you should note that this would have a negative affect on your credit report. It would lower your score by 250 points but you won't be liable for the deficient balance resulting from the sale of the property.
Take care.
You can apply for a deed in lieu of foreclosure with your lender and try to get rid of the property. However, you should note that this would have a negative affect on your credit report. It would lower your score by 250 points but you won't be liable for the deficient balance resulting from the sale of the property.
Take care.
i surrendered my house 9 yrs ago the 1st mortgage, left me alone but the 2nd mortgage people want me to pay the difference. they sold the case a different company and did this 3 times, what is going on?
Welcome anonymous,
After a foreclosure, the second mortgage company has the rights to sue you for the difference. If you cannot pay it, then the lender will charge off the loan. A collection agency will contact you for the payments. Once your account is sold off to a collection agency, the lender will not be able to contact you for the payments.
After a foreclosure, the second mortgage company has the rights to sue you for the difference. If you cannot pay it, then the lender will charge off the loan. A collection agency will contact you for the payments. Once your account is sold off to a collection agency, the lender will not be able to contact you for the payments.
I own a home 50/50 with my ex husband, however the loan is in his name only. He took out a $275k 2nd on the home without my knowledge, and did not disclose to the second lienholder that the home was jointly owned. He has now stopped paying his 2nd mortgage. Can the 2nd lienholder foreclose on the house to pay his 2nd when he only owns 50% of it?
hi guest,
the property has been used as a collateral to take out the second mortgage. thus, the second lender has the rights to foreclose the property in order to recover his dues. however, in most cases, the second lender charges off the loan. if he forecloses the property, then he will have to satisfy the dues of the first mortgage lender. to know about second mortgage charge off, check out the given page:
http://www.mortgagefit.com/know-how/secondloanchargeoff.html
the property has been used as a collateral to take out the second mortgage. thus, the second lender has the rights to foreclose the property in order to recover his dues. however, in most cases, the second lender charges off the loan. if he forecloses the property, then he will have to satisfy the dues of the first mortgage lender. to know about second mortgage charge off, check out the given page:
http://www.mortgagefit.com/know-how/secondloanchargeoff.html
We have not paid our mortgages (1st and 2nd) for 4 months. If I close a large sale and get a big commission check this summer, what are the chances that the banks will correct our credit report/rating for a lump sum payment of all back mortgage payments?
Hi  pooranonymous,
The lender has reported the late payments to the credit bureaus. It will be the lendediscretion whether or not he would remove the negative items from your report. Once you make the lump sum payment to the lender, you should start negotiating with the lender so that he removes the negative items from your credit report.
The lender has reported the late payments to the credit bureaus. It will be the lendediscretion whether or not he would remove the negative items from your report. Once you make the lump sum payment to the lender, you should start negotiating with the lender so that he removes the negative items from your credit report.
Hello Jessica,
Question for you. Purchased a house with a buddy in Minnesota. One of us is on the 1st alone through Citi (80%) and the other on the 2nd alone through Chase(20%). What could happen if he stopped paying the 2nd with Chase? Could that effect me on the 1st? What kind of options do we have?
Thanks
Question for you. Purchased a house with a buddy in Minnesota. One of us is on the 1st alone through Citi (80%) and the other on the 2nd alone through Chase(20%). What could happen if he stopped paying the 2nd with Chase? Could that effect me on the 1st? What kind of options do we have?
Thanks
If your friend stops paying the second mortgage dues, the second lender will have the rights to foreclose the property. However, in most cases, the lender will charge off the second loan and collection agency will collect the dues from you. If the second lender forecloses the property, then you will lose it. Your friend can contact the second mortgage lender and apply for a loan modification. This will help him save the property.