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?
My husband filed chapter 7 and was discharged in March 2010. I was co-signer on a Heloc of 100,000. We are in the process of trying to get the first with Chase modified. Today I was issued a summons for a pre-trial conference regarding the Heloc with Wells Fargo. I had told Wells Fargo that as soon as I knew what was going on with the loan modification I would know what I could pay on the Heloc. Wells had also said to me that the Heloc was charged off and was at 0 % . We want to keep our house if we can get a loan mod. We are upside down about the amount of the heloc (100K).
We live in Oregon. Thanks for any help.
We live in Oregon. Thanks for any help.
Hi logan,
You had included your HELOC in your bankruptcy filing and got it discharged. Thus, you're not personally liable for the mortgage payments. Moreover, it has been charged off by the lender. So, as far as I can understand, you won't have to make any payments on the HELOC.
Thanks
You had included your HELOC in your bankruptcy filing and got it discharged. Thus, you're not personally liable for the mortgage payments. Moreover, it has been charged off by the lender. So, as far as I can understand, you won't have to make any payments on the HELOC.
Thanks
but pay only on the first . Equity is upside down first is 400k and 2nd 75k and the value of house is 300k
welcome andreag,
you should pay both the first as well as the second mortgage. if you stop paying the second mortgage, you may not be able to save the property. if you stop paying the dues, the lender will have the rights to foreclose the property. however, in most cases, the lender does not foreclose the property as he will have to satisfy the dues of the first lender before he can satisfy his own dues. thus, he may charge off the loan and can assign your loan account to a collection agency.
you should pay both the first as well as the second mortgage. if you stop paying the second mortgage, you may not be able to save the property. if you stop paying the dues, the lender will have the rights to foreclose the property. however, in most cases, the lender does not foreclose the property as he will have to satisfy the dues of the first lender before he can satisfy his own dues. thus, he may charge off the loan and can assign your loan account to a collection agency.
Somebody told me that you can get your money back if after paying so much after a bankruptcy discharge you stop paying the discharged second mortgage and the bank forecloses. The reason behind that is that the mortgage and the debt no longer exist after the discharge and the money being paid is just a deposit until total debt is completed. The mortgage and debt is no longer there as it is discharged. And should the bank decide to foreclose, they should also return the monies. The thing is, you should demand for the return of the monies otherwise they will not return.
The bank at second lean, should also pay off the first lean bank before they could take possession of the property. This is if you are current with the first mortgage. So, the idea is, you should be current with the first mortgage. If the property is so underwater, this will make it very difficult for the second lean to foreclose/repossess as they could expose themselves to greater loses. At this point you could nickel and dime them for a settlement to release the lean. You could even leverage the payments already made as final settlement for the release of the lean on your property or they could return all your monies and pay the first so they could repossess(not foreclose - remember - there is no more mortgage) the property.
Their right to repossess is based solely on the lean and not the mortgage that no longer exist. Beware - even if you are paying current the supposed mortgage/loan they can still repossess if they satisfy the first solely based on the lean. After the discharge, you are actually paying for nothing.
Agree? Disagree?
The bank at second lean, should also pay off the first lean bank before they could take possession of the property. This is if you are current with the first mortgage. So, the idea is, you should be current with the first mortgage. If the property is so underwater, this will make it very difficult for the second lean to foreclose/repossess as they could expose themselves to greater loses. At this point you could nickel and dime them for a settlement to release the lean. You could even leverage the payments already made as final settlement for the release of the lean on your property or they could return all your monies and pay the first so they could repossess(not foreclose - remember - there is no more mortgage) the property.
Their right to repossess is based solely on the lean and not the mortgage that no longer exist. Beware - even if you are paying current the supposed mortgage/loan they can still repossess if they satisfy the first solely based on the lean. After the discharge, you are actually paying for nothing.
Agree? Disagree?
How long is the Statute of Limitation to collect the second loan from a collection agency?
Hi Realtor,
You haven't mentioned your state. Statute of Limitations (SOL) varies from one state to another. You'll have to check your state laws in this regard.
Thanks
You haven't mentioned your state. Statute of Limitations (SOL) varies from one state to another. You'll have to check your state laws in this regard.
Thanks
i have a first and a second on my home we stop paying on the secon about a year ago and on the first we did a modification. we have not heard from the second what can happen if we dont do anything about the second
Hi Jelo,
You should contact the second lender in order to find out whether or not they have charged off the account. If yes, the loan becomes uncollectible by the lender. In such a case, most lenders assign the account to a collection agency who will contact you and harass you for the payment.
You should contact the second lender in order to find out whether or not they have charged off the account. If yes, the loan becomes uncollectible by the lender. In such a case, most lenders assign the account to a collection agency who will contact you and harass you for the payment.
I owe 142,000 on first mortgage and 108,000 on second mortgage (250,000 total). We are looking to get out of house and sell it. However, market price for our house is about 150,000 which would pay off first mortgage. We are still upside down about 100,000 which is all in the second mortgage. Is there anyway we could sell and get rid of this second mortgage.. or possibly carry it with us to new house?
Hi Guest,
You won't be able to get rid of the second mortgage without paying it off. Also, you won't be able to carry it over to the new property. You will have to pay off the dues once the property is sold off. If you cannot pay off the dues, you can contact the lender and inform him about the same and request him to forgive the dues. It will be the lender's discretion whether or not he will forgive the dues.
Thanks
You won't be able to get rid of the second mortgage without paying it off. Also, you won't be able to carry it over to the new property. You will have to pay off the dues once the property is sold off. If you cannot pay off the dues, you can contact the lender and inform him about the same and request him to forgive the dues. It will be the lender's discretion whether or not he will forgive the dues.
Thanks
hi Jessica my House primary residence went to foreclosure a year ago now i recently had a call from green tree saying that now i owe money to them from the second mortgage both morgage 80/20 were purchase money i had a charge off from the second mortgage it sees like if green tree bougth the loan what can i do can they sue me help the house was in henderson nevada
my 1st and 2nd are through the same lender, and my first is upto date but my second is 2 months behind, i really dont know what to do i get caught up and then i am behind again. my husband i laid off and we are trying to make it on one income. i was going to just totally stop paying my second what can they do to me? the mortgage did do a loan modification on my second, and they can not do another loan mod until after one year. should i just wait it out? should i keep trying to pay?
We bought our house 5 years ago for $550,000. We asked for a fixed rate loan but Ameriquest instead gave us a 3 year ARM. Our 1st mortgage was for $440,000 and the second one was for $110,000. After 3 years when the rate adjusted I was able to file for a modification so now we have a fixed rate but we had a loss of income as my husband had to stay home to take care of the kids so we are months behind on our mortgage payments. Now the lender want to foreclose on our house. Should we change the bankruptcy filed from Chapter 7 to 13? Our debts were already dismissed through Chapter 7 but is it still possible to change or is there any other way to help us save our house? Is it possible to get rid of the 2nd mortgage as what the lawyer told me even if I filed for Chapter 7?
We bought our house 5 years ago for $550,000. We asked for a fixed rate loan but Ameriquest instead gave us a 3 year ARM. Our 1st mortgage was for $440,000 and the second one was for $110,000. After 3 years when the rate adjusted I was able to file for a modification so now we have a fixed rate but we had a loss of income as my husband had to stay home to take care of the kids so we are months behind on our mortgage payments. Now the lender want to foreclose on our house. Should we change the bankruptcy filed from Chapter 7 to 13? Our debts were already dismissed through Chapter 7 but is it still possible to change or is there any other way to help us save our house? Is it possible to get rid of the 2nd mortgage as what the lawyer told me even if I filed for Chapter 7?