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?
What are the chances the second will go ahead with forcloser. The propery value us $120,000 and First balance is $118,000 and second is $48,000. All I wantto do is get a lower interest on the second but they will not even entertain the idea. What can I do ?
I own 2 properties: Primary is in IL with $184K mortgage & appraised at $365K. 2nd is rental property in AZ and is underwater: $216K owed in the form of a HELOC with no 1st mortgage...appraised @ $195K. If I foreclose on the AZ property how successful would the bank be in going after the equity in my IL property to make up the difference? My wife & I are 100%retired. I get $1298 monthly from Soc Sec; $176 from a pension. No savings account & $1,000 in checking. All other assets are tied up in IRA retirement funds. NOTE: I used $160K of the HELOC to reduce our IL mortgage back in 2009. Thank you.
hi!
welcome to forums!
to gordon,
as you don't have equity in your property, the second mortgage lender will not refinance the mortgage to provide you with a low rate. the second mortgage lender has the rights to foreclose the property. if he forecloses the property, he will have to pay off the dues of the first mortgage before satisfying his own dues. thus, most second mortgage lenders charge off the account and sell it to a collection agency. the collection agency in turn contacts the borrowers for the dues.
to tom n,
in order to place a lien on your property, the lender will have to file a lawsuit in illinois and get a judgment against you. unless he does so, he won't be able to place a lien on your property.
feel free to ask if you've further queries.
sussane
welcome to forums!
to gordon,
as you don't have equity in your property, the second mortgage lender will not refinance the mortgage to provide you with a low rate. the second mortgage lender has the rights to foreclose the property. if he forecloses the property, he will have to pay off the dues of the first mortgage before satisfying his own dues. thus, most second mortgage lenders charge off the account and sell it to a collection agency. the collection agency in turn contacts the borrowers for the dues.
to tom n,
in order to place a lien on your property, the lender will have to file a lawsuit in illinois and get a judgment against you. unless he does so, he won't be able to place a lien on your property.
feel free to ask if you've further queries.
sussane
i have a first mortgage of 300,000 and a second mortgage of 50,000. the house is worth 525,000 ? the second mortgage was acquired from my business that failed, and had nothing to do with the house. is there any way to get out of paying for the 2nd? or could the bank put the two together and give me a good % the problem with that is i can not show income to support this large of a loan anymore . then what? thanks ron
Hi Ron,
If you've taken out a second mortgage, then you're responsible for paying the second mortgage. If you're facing hardship in paying off the loan, then you should contact your lender regarding the same. The lender may help you with a repayment plan which will make it affordable for you to pay off the dues.
If you've taken out a second mortgage, then you're responsible for paying the second mortgage. If you're facing hardship in paying off the loan, then you should contact your lender regarding the same. The lender may help you with a repayment plan which will make it affordable for you to pay off the dues.
Hi my home was foreclosed on July 2009.I had the 1099 forms for the taxes filed and no one ask for money till now 12/10 the small mortgage sold my loan to SLS Special Loan Servicing and they ask me for payments i cant pay anything and dont want to. What can i do please tell me..i also dont want to file bankrupcy.
I am almost to close on my short sale and there is a lien on my home from a loan I did not repay (1300.00) , the company that put the lien back in 2008 no longer exits but another person purchased that business and wants the 1300.00 (they are garnishing my wages which is not much) that is why I am short selling...do I have to pay the new owner?
Hi Dani,
As you've taken the mortgage, you're liable for the payments. You're unable to pay the dues because of your financial hardship. In that case you can negotiate with SLS so that they give you an affordable payment plan in order to pay off the dues.
Welcome Guest,
As far as I can understand, you'll have to pay off the balance dues to the new owner.
As you've taken the mortgage, you're liable for the payments. You're unable to pay the dues because of your financial hardship. In that case you can negotiate with SLS so that they give you an affordable payment plan in order to pay off the dues.
Welcome Guest,
As far as I can understand, you'll have to pay off the balance dues to the new owner.
I have a second on my house what would happen if i pay the first but does not have enough for the second?
Welcome Guest,
The second mortgage lender can charge off the account and sell it off to a collection agency which will not only have a negative affect on your credit report but the collection agency will also harass you for the payments.
The second mortgage lender can charge off the account and sell it off to a collection agency which will not only have a negative affect on your credit report but the collection agency will also harass you for the payments.
chp7 discharge june 08 we owe 320000 on first mtg 40000 on 2nd house is worth 315000 if i stop paying 2nd what can they do
Welcome Mark,
Have you reaffirmed the mortgage? I hope not. In such a situation, if you stop paying off the second mortgage dues, the lender can foreclose the property in order to recover his dues. However, in order to do so, the second mortgage lender will have to pay off the dues of the first lender before satisfying his own dues.
Have you reaffirmed the mortgage? I hope not. In such a situation, if you stop paying off the second mortgage dues, the lender can foreclose the property in order to recover his dues. However, in order to do so, the second mortgage lender will have to pay off the dues of the first lender before satisfying his own dues.
My house foreclosed almost a year ago. I owed 165 and the bank got 180 for the house at the sale. I had a second mortgage through a separate bank and the mortgage company never paid it off after they sold the house. Now the bank is suing me for the second mortgage loan amount. I had the loan with my ex husband and now he says he will file bankruptcy to avoid paying his half. What should I do now?
Hi jensrealestate!
Welcome to forums!
You will have to pay off the second mortgage dues in full. It is not the responsibility of the first lender to pay off the dues of the second. The onus lies on the borrower to make sure that the second lender gets paid off. So, you should now negotiate with the second lender and pay off the dues.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You will have to pay off the second mortgage dues in full. It is not the responsibility of the first lender to pay off the dues of the second. The onus lies on the borrower to make sure that the second lender gets paid off. So, you should now negotiate with the second lender and pay off the dues.
Feel free to ask if you've further queries.
Sussane
I have 2 mortgages on my current property. When I purchased it 6 years ago it was for 252,000. My husband and I took out an equity line on the property for 80,000 that went into a currency investment. We found out later that currency investment turned out to be a ponzi scheme. So, now I owe the 80,000 plus the remainder of my first which is roughly around 186,000. My property is only estimated at 105,000. Clearly, I am upside down on the first. We have already stopped paying the 2nd for reasons that we lost all the money we were paying it with and we are so far in negative equity we can't recoup anytime soon. Are there any options to freeing ourselves from this second lien without completely destroying credit. The mortgage company has already called me and the person I spoke to said the next step would be a charge off. Do I just let that happen or see if they will do a settlement? I've tried for well over a year and a half to have things modified and they won't touch my mortgage. Any advice?