Compare Mortgage Quotes

Refinance Rates for Today

Please enable JavaScript for the best experience.

In the mean time, check out our refinance rates!

Company Loan Type APR Est. Pmt.

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,

If you cannot pay both the loans, then you should contact your lender and apply for a loan modification. If the lender agrees to it, then you'll get an affordable repayment plan to pay off the dues and save the property.
Posted on: 04th Nov, 2010 12:11 am
I have recently received a loan mod proposal from my Primary bank on my first loan. I'm not happy that they added 60k in principal (Back interest I owed) on top of the original principal, but at least I can save my home. My question is on the second loan, it was sold to another bank at some point, but never recordd in the clerks office, it was assigned through MERS, do I still have to pay the 2nd mortgage ?, I am not looking for the moral answer but legally I heard any assignments throyugh MERS are fraudulent and they are not eligible as a nominee mortgagee, or does this only come into play when a foreclosure is present, an in that breadth, can the 2nd bank foreclose if I dont pay them but I am paying the first loan under the loan mod proposal ? Thanks
Posted on: 11th Nov, 2010 09:44 am
Welcome Bombers,

If the second loan has not been recorded, then you're not liable to pay it. As far as foreclosure is concerned, many states have stopped it due to the certain issues with the paperwork. So, you should check out whether or not foreclosure is allowed in your state.
Posted on: 11th Nov, 2010 11:28 pm
i have a 1st. mortgage with a balance of approximatly $170,000. my 2nd. mortgage is approximatly $78,000. the current value of my property is about $190,000 to $200,000. i am current with my first mortgage but i'm behind in my second by 3 months. i have not heard from my second mortgage company in 5 months. i just received a letter from a collection agency saying they were trying to collect on my second mortgage. my mortgage holder never contacted me telling me they were giving my mortgage to a collection agency. my question is did my mortgage company sign off on my second mortgage and just give it to the collection agency to try and collect? if they did should i still try and make up the past payments? if they signed off am i still responsible for the second mortgage? i'm not sure what to do.
Posted on: 16th Nov, 2010 08:34 am
Welcome Guest,

As you haven't made the payments on time, the mortgage company has sold off your account to a collection agency and they are now contacting you for the payments. Though the lender has sold off the account, you're still liable for the payments. If you want to deal with your lender and pay off the dues to him, then you should ask the lender to withdraw the account from the collection agency.
Posted on: 16th Nov, 2010 11:18 pm
My 2nd mortgage note with Suntrust is 550.00 a month I paid $350 aprox in the last 2 months and they have cash the checks and now they are sending me a collection notice stating that i missed those payments (total amount 1100) and that they can accelerated loan and eventually foreclose. Can they legally do that if they took partial payments?
Posted on: 27th Nov, 2010 08:27 am
Welcome Bernard,

You are liable to pay the full amount to the lender unless you receive a formal loan modification or reduction of payment from your lender. If you make partial payments, the lender can send your account to collections.
Posted on: 28th Nov, 2010 10:31 pm
I am up-side down on my home big time. Recently was notified by GMAC that my second mortgage (35K) was never reccorded with the county. They are hounding me to sign some papers so that they can have it reccorded. I am going to walk from my home but would like to know if I hav't to pay them. I am going to retire very soon...what can they do? I live in Arizona and I am not familiar with the laws here...please help.

Thank you
Posted on: 03rd Dec, 2010 09:40 am
Can your husband refuse to pay first and second mortgage because he left the home? What can I do?
Posted on: 03rd Dec, 2010 08:30 pm
Hi Cowlip,

If the mortgage is not recorded, then you will not be liable to pay off the mortgage dues. In that case, you can walk away from the property without any liability.

Thanks
Posted on: 03rd Dec, 2010 10:03 pm
My home was paid off. Before I retired I got a HEL at 80% of the current value. The sum of 247,500.00. With this I bought a home out of state to retire in. Now the first home won,t sell and I have paid thousands to keep it on the market. I have been renting but my time on loan is running out. The home is now assed at only 168,000.00. What can I do.
Posted on: 14th Dec, 2010 06:48 am
what if i have already file bakruptcy, and am in the process right now. i have not received the statements from the banks.. but i have faithfully been sending payments on the 1st, BUT have not payed the 2nd in 2 months.. is theis a breathing room i can pause and wait will they send me a sttement after bankruptcy is over telling how much i owe, so i can send a payment? or shud i try and send a payment now thru the proceesss, even if i dont know the amount?
Posted on: 14th Dec, 2010 02:22 pm
hi desperate,

if you don't want to keep the house and if you're already delinquent on your mortgage payments, then you can apply for a deed in lieu of foreclosure to get rid of the property. moreover, you won't be liable for paying any deficient amount to the lender.

to sandywandy,

as you've already filed bankruptcy, there is an automatic stay against all your creditors and they cannot take any actions against you unless your bankruptcy filing has been discharged. you may stop paying the second mortgage dues for the time being.

thanks
Posted on: 14th Dec, 2010 08:21 pm
We filed chapter 7 last year and have a first and second mortgage . My home Value is $120K and the first has a balance of $118K and the second is $48K. We reafirrmed the first and not the second. What will happen if I stop paying the second, I live in Georgia and my wife has lost her job. I asked the second to lower the interest or lower the principle and they said no.
Posted on: 16th Dec, 2010 03:34 pm
Hi Gordond,

If you stop paying the second mortgage, he will have the rights to foreclose your property in order to recover his dues. However, if he forecloses your property, he will be liable to pay off the dues of the first mortgage lender prior to recovering his own dues.
Posted on: 16th Dec, 2010 09:22 pm
Page loaded in 0.257 seconds.