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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?
I got a modification done for my rental property and have a second mortgage I cannot pay of $75,000. Are they able to put a lien on my primary residence for that, if I do not file for a chapter 13? I want to file for chapter 13 after the Loan for my primary residence is modified officially.
Posted on: 12th Oct, 2010 10:57 pm
hi lenvilla,

if your bankruptcy filing has not yet been discharged, then you can convert it into chapter 13. if you convert it into chapter 13 and do not have equity in your property, then you'll be able to strip off your second mortgage. as far as the first mortgage is concerned, you'll get a repayment plan to pay off the dues.
Posted on: 13th Oct, 2010 12:22 am
Greetings,

I am in an in-house modification because I owe $4500 in back payment because B of A lied to me about the approval of a loan mod. I keep getting letters of intent to accelerate and B of A will not roll in my BAL into the present loan. Because I have multiple hardships I am trying to pay the balance and have to stop payment on the second mortgage with B of A for 44K. First off, what happens next? Is the intent letters a prologue to foreclosure? At what point am I unable to seek bankruptcy and can I seek bankruptcy during a foreclosure? If I walk away form the home, can the banks garnish my wages? I am trying to find options and it seems that B of A just wants to foreclose.
Posted on: 13th Oct, 2010 06:25 am
Hi jevans,

You've received a pre-foreclosure letter in my opinion. Thus, the lender may foreclose your property if you don't pay off all the balance dues immediately. If you walk away from the property, the bank can garnish your wages provided they get a judgment against you.

Thanks
Posted on: 14th Oct, 2010 12:53 am
I have a 'upside-down' mortgatge (1st & 2nd). What happens if I simply stop paying both mortgages and plan to 'walk away' from the home in approximately 3 months?
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I am aware of what will happen with my credit scores and am OK with that. I just need to know my liability (specifically for the 2nd mortgage) if I stop paying both.
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Thank you.
Posted on: 18th Oct, 2010 06:48 am
I have 2 equity lines with the same bank and cannot afford to pay for both of them anymore. They refuse to combine them because one is in both my xhusbands and my name, and one in only my name. What happens if I stop paying on the one in my name only?
Posted on: 18th Oct, 2010 09:13 am
Hi!

Welcome to forums!

To Guest,

If you stop paying the dues and walk away from the property, the lender will foreclose it to recover the dues. Both the lenders can come after you in order to recover the balance amount resulting from the property sale.

To anonymous,

If you stop paying the loan, there are chances that the lender can charge off the mortgage and then assign it to a collection agency. The collection agency can come after you to recover the dues.

Feel free to ask if you've further queries.

Sussane
Posted on: 18th Oct, 2010 11:46 pm
I am legally divorced and my exwife got the house. As per the divorce agreement she was to pay the first mortgage and I was to pay the second. However, she stopped paying the first mortgage and is letting the house foreclose. Should I continue to pay for the second mortgage? Or should I stop also?
Posted on: 19th Oct, 2010 07:10 pm
Hi anonymous,

If your name is not on the second mortgage, then you can stop the loan payments. Once the house is foreclosed, the lender will recover as much money as possible from the sale proceeds.

Thanks
Posted on: 19th Oct, 2010 11:44 pm
Hi
we have a problem after selling the house in a short sale the second loan is trying to collect even though they agree to take a % of the debt to proceed for the short sale, the company is Green Tree I dont know if it is a bank or a collection company, this 2nd is the original from the original we use to purchase the property we did 80/20 both with IndyMac and even before we stop making the payments Indymac sold the second to Green Tree, they agree to the short sale ,
Posted on: 19th Oct, 2010 11:54 pm
Our 2nd mortgage was supposed to come out electronically. Because of a gliche in the system, there was a red flag on the electronic withdrawal and the money was not taken out of our account. We were not sent a notice or anything about being late. My husband called and now they say that we were in foreclosure and now in charge-off. We want to pay it off. What can we do now?
Posted on: 20th Oct, 2010 11:01 am
To Christinaa,

The second lender has the rights to come after you to recover the balance amount resulting from the sale of the property. You should contact the lender and negotiate a payment plan with them to pay off the dues.

To mball,

You can ask your lender to withdraw the account from the charge off status so that you can make normal payments and save your home.
Posted on: 21st Oct, 2010 03:57 am
if i file bankrupt and my grandma is a cosinger what can happen to her she on social security. and never lived with me; what can i do also my house is way upside down.
Posted on: 24th Oct, 2010 10:27 am
What happens if I cannot pay both. Do I stop paying the home equity line or the first loan, which are both held by Indymac!
Posted on: 03rd Nov, 2010 10:45 am
What happens if I cannot pay both. Do I stop paying the home equity line or the first loan, which are both held by Indymac!
Posted on: 03rd Nov, 2010 10:45 am
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