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.
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 Victor!
Welcome to forums!
If you file bankruptcy, you can get both the mortgages discharged. You won't be liable for paying off the mortgages personally.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you file bankruptcy, you can get both the mortgages discharged. You won't be liable for paying off the mortgages personally.
Feel free to ask if you've further queries.
Sussane
My 1st is 418 & my 2nd is 178 & my house is worth about 490, what would be the best way to get rid of the 2nd?
Welcome Guest,
If you had equity in your property, then you could have refinanced both the mortgages into one and get rid of your second mortgage. However, as you don't have equity in your property, you won't be able to get a refinance and won't be able to get rid of the second mortgage. You will have to pay off the second mortgage.
If you had equity in your property, then you could have refinanced both the mortgages into one and get rid of your second mortgage. However, as you don't have equity in your property, you won't be able to get a refinance and won't be able to get rid of the second mortgage. You will have to pay off the second mortgage.
3 years ago i went through foreclosure i got a letter from colection company. they told me i owe a debt to ins.company. they are not listed on any of my paper work. all paper work was filed. the company trying to collect will not give me any paper work. can they do this in navada after three years.
Hi reno!
Welcome to forums!
You should ask them to validate the debt in writing. Unless they do so, don't offer him any payments.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You should ask them to validate the debt in writing. Unless they do so, don't offer him any payments.
Feel free to ask if you've further queries.
Sussane
If I cannot affort to pay my entire mortgage payment, would it be better to make a partial payment rather than not pay anything?
Hi Guest,
Many a times, the lender will not be ready to accept your partial payments. As you're facing hardship in paying off your mortgage payments, it will be better if you could go for the option of loan modification. This will help you in getting an affordable payment plan to pay off the mortgage.
Thanks
Many a times, the lender will not be ready to accept your partial payments. As you're facing hardship in paying off your mortgage payments, it will be better if you could go for the option of loan modification. This will help you in getting an affordable payment plan to pay off the mortgage.
Thanks
i'm in the usmc and purchased a house in southern california before the crash in 2006. two mortgages (80/20) for a total of $320,000. first mortgage is an arm set to expire soon. second mortgage was converted to an equity line of credit to allow me to pay off debt in order to purchase the house (paid a total of $8000). i was planing to sell it if i was transferred out of the area. the market crashed, and right after (4 years ago) i was transferred and couldn't sell the house. i bought the house two months to late to qualify for any dod relief programs and my lenders won't work with me. my house is now worth $78,000 and all the similar homes around mine are selling for $74,000. i'm going to be medically booted from the marines shortly due to an injury in iraq and will be unemployed at that point. i'm so far under this loan, how bad will it be if i just walk away? thanks for any advice.
Hi Marine!
Welcome to forums!
If you walkaway from the property, the lender will foreclose it and you will be liable for paying the deficient balance resulting from the property sale. Both the lenders can come after you for the deficient balance. Moreover, it will lower your credit scores by around 250 points.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you walkaway from the property, the lender will foreclose it and you will be liable for paying the deficient balance resulting from the property sale. Both the lenders can come after you for the deficient balance. Moreover, it will lower your credit scores by around 250 points.
Feel free to ask if you've further queries.
Sussane
How much time will be given to pay off the second mortgage ? If the person is unable to pay immediately will if affect the credit score ?
I am upside down by 150K, and having a such a hard time making intrest only payments on my 1st and 2nd as well as my insurance and bills met. I have no other outstanding payments (car for example). I live in Floirda, and was wondering what my options may be with my 2nd. I tried MHA program, and was denied as my 1st is less than 33.333% of my pay. HELP!
Hi unab,
The second mortgage should be paid off immediately or else the lender will report the late payments to the credit bureaus which will have a negative affect on your credit report.
To CentFLpinch,
You can contact your second mortgage lender and apply for a loan modification. The lender will check your situation and let you know whether or not you'll qualify for loan modification.
Thanks
The second mortgage should be paid off immediately or else the lender will report the late payments to the credit bureaus which will have a negative affect on your credit report.
To CentFLpinch,
You can contact your second mortgage lender and apply for a loan modification. The lender will check your situation and let you know whether or not you'll qualify for loan modification.
Thanks
My wife and I had a Chapter 7 discharge in 2008. Both 1st and 2nd mortages were discharged with no reaffirmation. We have been paying 1st mortgage to stay in the house. If we sell the house to pay off the first mortgage, will we still have to pay off the heloc with any proceeds?
I have a question. Usually the property value increases as days goes on. If the borrower who has purchased the property for a particular rate, and after few years if he is unable to pay the loan amount and decide to sell the property, definitely he could sell the property at the rate much high than the rate he bought. I am not sure if i am correct. If it so, he would not fall under deficiency balance right ?
Hi John!
Welcome to forums!
As the mortgage has been discharged and not reaffirmed, you're not personally liable for paying off the mortgage. The second lender may not come after you to recover the debts if you sell off the property.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
As the mortgage has been discharged and not reaffirmed, you're not personally liable for paying off the mortgage. The second lender may not come after you to recover the debts if you sell off the property.
Feel free to ask if you've further queries.
Sussane