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Stop paying second mortgage - What happens next?

Author: Jessica Bennet
Community Mentor
Ask Jessica
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:



  • 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:


    1. 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).



    2. 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.
Posted on: 17th Sep, 2008 12:30 am
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?
Hi Guest!

Welcome to forums!

Have you reaffirmed your second mortgage? If not, then you're not personally liable for the mortgage dues. The second lender may want to foreclose the property in order to recover the dues. However, if he forecloses the property, then he may have to satisfy the mortgage dues of the first lender. However, the lender will not be able to come after you for the deficient balance resulting from the sale of the property.

Feel free to ask if you've further queries.

Sussane
Posted on: 29th Jun, 2010 12:52 am
We filled chapter 7 BK a year and a half ago due to a failed business. BK attorney said to not reaffirm our mortgages (both 1st and 2nd have always been current with Wells Fargo). According to zillow our home is worth 505K, but I feel it may be 530ish, since their figures include too small of a square footage and the many upgrades I've made.

1st loan is 465K and the 2nd is 145K for a total of 610K. Both loans are 10 / 1 ARMS and are adjustable JAN 2010.

What are possible outcomes if I stop paying the 2nd? And in what time frame will it typically happen?

Thanks
Posted on: 06th Jul, 2010 04:24 pm
Hi Guest!

Welcome to forums!

As you haven't reaffirmed the mortgages with your lender, you are not personally liable for the loan. If you stop paying the loan, the lender will foreclose the property but he won't be able to come after you for the deficient balance resulting from the sale.

Feel free to ask if you've further queries.

Sussane
Posted on: 07th Jul, 2010 12:18 am
Thanks Sussane--

How long will it take for WF to foreclose and require us to move out?
Any special rules since we already have the Ch7 and didn't reaffirm?

If my credit is already shot from the Ch 7, wouldn't it make since to stop paying the mortgage and bank over 4000 a month until we have to move out?

The house is 100K under and probably headed more south over the next 3-5 years.

I could just rent for the next 5 years and probably put 175-200K in the bank, then with no debt hopefully look to buy at that time with a large down payment.

Your thoughts please.
Posted on: 07th Jul, 2010 05:52 pm
Hi Guest,

It may take around 90 days for the lender to foreclose the property. After the property is foreclosed by the lender, he will send you an eviction notice. The time period to leave the property will be mentioned in that notice. As you did not reaffirm the loan in Chapter 7, the lender will not be able to come after you for the deficient loan balance.

As you haven't reaffirmed the mortgage, you're not personally liable for the dues. Thus, you can stop your mortgage payments and let the lender foreclose the property.
Posted on: 08th Jul, 2010 01:45 am
I currently have a first and second mortgage with the same credit union, my question is since i'm already 2 months behind on my second mortgage, will the credit union take any action towards my home since its the same company, and or will it just go on my credit instead of having it against my first mortgage...I cannot afford this payment and im in desperate need to know what is going to happend since I know I wont be making the 2nd mortgage payments..please help
Posted on: 12th Jul, 2010 02:45 pm
Hi el,

The credit union can take actions against you if you do not pay off the second mortgage dues on time. The credit union can charge off the mortgage and assign the account to a collection agency. This will have a negative impact on your credit report and the collection agency will harass you for the payments.

Thanks,

Jerry
Posted on: 13th Jul, 2010 02:56 am
I owe $490K on my first and $115K on my second. So about $605K in total. My house is porbably worth about $430K. My first modified my loan, my second will not.

I have a good job that pays about $115K a year, but I have four young children and we only have my single income.

What will happen if I keep paying on the first and just stop paying on the second? Will they negotiate a settlement? Am I better to just leave the property altogether?

I can try and wait it out as I can barely make the payments now, but I can make them. My concern is for the future. I know I signed the docs, but what's the point? Struggle to make the payments and not have anything to save for my kids college and hope in 20 years my house is worth what I owe?
Posted on: 19th Jul, 2010 12:07 pm
Hi Guest,

If you stop paying your second mortgage, there are changes that the second lender will charge off the loan and assign the debt to a collection agency. The agency will in turn contact you for the debt. You'll have to negotiate with the collection agency in order to pay off the dues.

Thanks,

Jerry
Posted on: 21st Jul, 2010 03:41 am
I owe 325,000 on my first mortgage, which I am current and my second mortage is 70,000 which I am soon not being able to afford but is current..what are the chances the second mortage company will forclose? My loans are owned by 'private investors' i have been told. Its not a Fannie Mae backed or owned by one of the big mortgage companies.
Posted on: 28th Jul, 2010 08:40 am
Hi Guest,

The second mortgage lender may not foreclose upon the property. Rather, the second mortgage lender will charge off the loan and assign the account to a collection agency who will in turn contact you for the dues. This will have a negative affect on your credit report.

Thanks,

Jerry
Posted on: 29th Jul, 2010 03:54 am
I have a 1st mtg which was included in chpt 7, not reaffirmed, but current. A second mtg that was reaffirmed (attorney mistake) and also current, and a 3rd mtg that was also NOT reaffirmed and now considered unsecured. If I keep my 2nd reaffirmed mtg current and let the 1st mtg foreclose so it's still "under bankruptcy", can I continue to pay 2nd mtg so they dont report to cbr as a foreclosure, walk away from home or what happens?
Posted on: 29th Jul, 2010 06:41 pm
I've been reading alot about Green Tree and how mean they are, but how aggressive are they in foreclosing properties when they are on 2nd lien, the loan is discharged in BK7, the value of the property is underwater by 100k + and I have stop paying the mortgage? I have paid more than 1 year since BK was discharged but not just cannot afford anymore. Still current with 1st mortgage and this was not discharged. The 2nd was not reaffirmed. Anyone?
Posted on: 04th Aug, 2010 06:15 am
Hi!

Welcome to forums!

To Lyn,

If you pay the dues to the lender, then I don't think the lender will report it in a negative manner to the credit bureaus. However, the bankruptcy filing and the foreclosure by the first lender will be mentioned in your credit report.

To bgula,

If you haven't reaffirmed the mortgage with your second lender, then you're not personally liable for the loan dues. If you stop paying the dues, the lender would foreclose the property. But in that case, the dues of the first lender will be satisfied first.

Feel free to ask if you've further queries.

Sussane
Posted on: 05th Aug, 2010 02:14 am
is it legal to transfer a mortgage while bankruptcy is in process? my second mortgage was transfered to green tree ten days before court discharged the mortgage and bankruptcy.
Posted on: 07th Aug, 2010 06:00 am
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