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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?
what if your in bankruptcy and did not reaffirm first and second mortgage and you stop paying only the second mortgage?
Posted on: 09th Sep, 2010 03:45 pm
Welcome daveyo,

The second mortgage lender can foreclose the property in order to recover his dues. But once he forecloses the property, he will have to satisfy the balance amount of the first mortgage.
Posted on: 10th Sep, 2010 02:04 am
Lost job and had to retire early cannot afford high interest second mortgage at 13.8 percent plus through beneficial finance company a member of hsbc. What can I do??
Posted on: 12th Sep, 2010 04:38 pm
I am unemployed. I can't pay my 2nd mortage of $20,000. Should I file bankruptcy to get rid of it
Posted on: 13th Sep, 2010 07:30 pm
Hi!

Welcome to forums!

To Willie,

You can apply for a loan modification with your second mortgage lender. If the lender agrees to your request, then you'll be able to get a repayment plan which will help you in paying off the mortgage. However, your loan term might get increased due to this.

To Ireland,

You can file bankruptcy and include the mortgage in order to get a discharge. However, in my opinion it should be your last option. You should contact your lender and apply for a loan modification. If the lender accepts your request, then you won't have to go for bankruptcy.

Feel free to ask if you've further queries.

Sussane
Posted on: 14th Sep, 2010 12:22 am
Hello I have a 80/20 loan. I'm working on getting my first loan modified with NACA to a better rate that's fixed. NACA won't touch my second loan they say I have to negotiate with them to get a better deal. My plan it to modify my first loan and get that set then I'll claim a Homestead on my home I live in California. When all that is settled I'll stop paying the second loan and have the creditor come to me to get a better rate on that loan or just stop paying all together.

Does this sound like a resonable plan? I'm current on my payments but struggling and the 1st loan is going to ballon in about a year.
Posted on: 14th Sep, 2010 02:31 pm
Hi Anthony,

If you stop paying the mortgage, the lender can charge off the account and assign it to a collection agency. The collection agency will harass you for the payments. It won't be forgiven by the lender. You will remain liable for the payments. If you sell off the property without paying off the second lien, you won't be able to transfer the property to the buyer as free and clear.

Thanks
Posted on: 15th Sep, 2010 01:18 am
i have 1st 2nd ad 3rd my first 130000more the what my house is worth my 2nd is 84000 and my 3rd 35000 i stoped paying 2d and 3rd 6 months ago can they forclose my house
Posted on: 15th Sep, 2010 10:19 pm
how long can you stay in your home if you stop paying on it
Posted on: 16th Sep, 2010 07:53 am
Iam in the process of bankruptcy and included my second mortgage loan in my bankruptcy. Does my lender will foreclose my home or what will happen to my second loan mortgage. I got the same lender with the second mortgage.
Posted on: 17th Sep, 2010 12:14 am
Hi!

Welcome to forums!

To tweety,

The second and third mortgage lender will have the rights to foreclose the property if they do not receive their payments on time. However, before satisfying their own debts, they will have to satisfy the balance amount of the first lender.

To help,

If you stop paying your mortgage balance, the lender will foreclose the property. After the lender forecloses the property, you will get a notice period of 3 days to leave the property.

To ocabit,

If you've included your mortgage in the bankruptcy filing, the lender will not be able to foreclose your property immediately. You can get the second mortgage discharged and you won't be liable for paying it.

Sussane
Posted on: 17th Sep, 2010 02:07 am
I filed chapter 7 and my first mortgage and my second were included in the bankruptcy it has been discharged, I am trying to qualify for the hamp program with my first mortgage what if i stop paying my second mortgage what can happen? I am having trouble paying them both. I have been working on trying to get a modification since june 9, 2010 with my current mortgage company and do not see any future in this just getting the run around now what?
Posted on: 22nd Sep, 2010 02:24 pm
Hi flagirll,

You are not personally liable for the mortgage debt as your mortgages were included in the bankruptcy filing. If you don't make the payments on time, then the lender will foreclose the property but he won't come after you for the balance dues resulting from the foreclosure sale.
Posted on: 23rd Sep, 2010 12:27 am
WHEN I CHECK MY CREDIT REPORT. i FOUND OUT THAT MY SECOND LOAN WAS WRITTEN OFF BY THE COMPANY, HOWEVER, I CONTINUE TO PAY MONTHLY PAYMENT. SHOULD I STOP PAYMENT?
Posted on: 24th Sep, 2010 08:57 am
Hi DEREK,

You need to contact your lender and clarify the whole matter. If the mortgage has been charged off by the lender, then it will have a negative affect on your credit report. You should ask your lender to remove the charge off status as you're paying the mortgage on a regular basis.

Feel free to ask if you've further queries.

Sussane
Posted on: 25th Sep, 2010 12:19 am
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