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?
Hi Tonia!
Welcome to forums!
If NACA has told that they won't help them with second mortgages, it will be better if they could contact the second mortgage lender on their own and try to set up an affordable payment plan.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If NACA has told that they won't help them with second mortgages, it will be better if they could contact the second mortgage lender on their own and try to set up an affordable payment plan.
Feel free to ask if you've further queries.
Sussane
Under the current circumstances, the second mortgagee retains a lien on the property, regardless of the "charged-off" status of that loan. However, their having sold off the debt to a collection agency gives me pause...could it be that they've invalidated their lien by that action? I don't know that answer, and I'd suggest you contact the Attorney General's office in your state, or (secondarily) your consumer protection bureau, assuming there is one.
Either of those options is not going to cost you anything, and they may well have the answer you need. As an alternative, you can certainly engage the assistance of an attorney (real estate attorney only, please) who can navigate through the law and let you know the status of the second lien.
My thought process? Well, it depends on what the lender did with that debt. If they've simply placed it with a collection agency with the hope that they'll get reimbursed and pay a fee to the agency, I'd have to surmise that the lien is fully valid. If, on the other hand, they sold the debt, then I question how they'd be able to claim that the lien would remain valid.
I don't know the answers to this quandary; hence my suggestion you contact someone with that specific expertise.
Either of those options is not going to cost you anything, and they may well have the answer you need. As an alternative, you can certainly engage the assistance of an attorney (real estate attorney only, please) who can navigate through the law and let you know the status of the second lien.
My thought process? Well, it depends on what the lender did with that debt. If they've simply placed it with a collection agency with the hope that they'll get reimbursed and pay a fee to the agency, I'd have to surmise that the lien is fully valid. If, on the other hand, they sold the debt, then I question how they'd be able to claim that the lien would remain valid.
I don't know the answers to this quandary; hence my suggestion you contact someone with that specific expertise.
We foreclosed 3 years ago and have been making payments on the home equity credit or 2nd mortgage for the past 3 years. It is difficult keeping up. What would the reprecussions be if we stopped making payments?
Welcome ANgel,
If you stop making the payments on time, the lender will charge off the account and assign it to a collection agency who will in turn contact you and harass you for the payments. It will be better if you could set up a payment plan with your second mortgage lender and negotiate for an affordable payment plan to pay off the debt.
If you stop making the payments on time, the lender will charge off the account and assign it to a collection agency who will in turn contact you and harass you for the payments. It will be better if you could set up a payment plan with your second mortgage lender and negotiate for an affordable payment plan to pay off the debt.
Agreed that it is always better to set up a payment arrangement, but that's often not viable for a borrower. Being harassed for payments could be worse, too.
is there any company out there that you may know of that is willing to refinance an under water house into one loan at current prime rate?
I am trying my best to keep my home but I can't keep renting a second mortgage at 7.6% interest only.
I am trying my best to keep my home but I can't keep renting a second mortgage at 7.6% interest only.
Hi Guest,
As your property is underwater, none of the lenders will be ready to refinance your existing mortgage. You don't have equity in your property. Unless, there is equity in your property, no lender will refinance your mortgage.
Take care.
As your property is underwater, none of the lenders will be ready to refinance your existing mortgage. You don't have equity in your property. Unless, there is equity in your property, no lender will refinance your mortgage.
Take care.
the bank now wants to do a appraisal on my house for the first time, because I have a 1st & 2nd with the same bank and the value of my house is below the market. This is one of those loans that was done over the phone without the bank even looking at the house. Is there anything I can do ???
What is your fear? I suppose you could refuse entry to the appraiser, but that'd raise a furor at the bank, and they'd not be too happy. Review your documents (assuming you have any), and see what rights you have, what responsibilities you have and what rights and responsibilities in this area the bank has.
We wonder why we're in the state we're in - lenders not even looking at the house (maybe they at least drove by) before granting a loan...stupid business practices.
We wonder why we're in the state we're in - lenders not even looking at the house (maybe they at least drove by) before granting a loan...stupid business practices.
i stopped paying my second mortgage, i am now two months behind after avoiding all the calls i decided to answer because i needed to know whom should i address my letter to. i was asked to resubmit info for a chance of getting a modification but i need to pay the previous months first.
i have my doubts that they will approve me because they denied me in january, should i resubmit the documents they are asking? what other course of action can they take if they deny once more? can i also negotiate to pay the pass due bill only if i get approved?
i have my doubts that they will approve me because they denied me in january, should i resubmit the documents they are asking? what other course of action can they take if they deny once more? can i also negotiate to pay the pass due bill only if i get approved?
You can always attempt to negotiate - that's not saying they'll negotiate back, of course; but it's worth the effort.
I'd resubmit - what have you to lose other than a little bit of time and some postage?
I'd resubmit - what have you to lose other than a little bit of time and some postage?
I tried to negotiate for the remod without having to pay the past due payment by asking that the payment be added in the remod and rep for the second mortgage said flat out NO & she will process for foreclosure.
I am in N.Y.S , what should my next step be ? Do I need to get an attorney or do I just wait for the notice in the mail?
I am in N.Y.S , what should my next step be ? Do I need to get an attorney or do I just wait for the notice in the mail?
Hi Guest!
Welcome to forums!
If you want to go ahead with the foreclosure, you should wait for the notice. If you want to save the property, then you should contact your lender again and negotiate for loan modification for the second time.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you want to go ahead with the foreclosure, you should wait for the notice. If you want to save the property, then you should contact your lender again and negotiate for loan modification for the second time.
Feel free to ask if you've further queries.
Sussane
I filed bankruptcy on my home two years ago and the lender still has not forclosed on the property, when I contacted them they said they had no intentions off forclosing on the property and that I could move back to it and continue making my morgage payments, I know that the property was charged off....does this sound legal, I asked for paper work that I could sign to make this a legal deal for me because I dont want to move back to the property and then they decide to forclose.
HI btt,
It is good that you have asked for paperwork before moving into the property. However, charge off is not similar to that of foreclosure. If the lender has charged off the loan, it means he is not interested in collecting the dues. If he has sold off the loan to a collection agency, then the collection agency can come after you in order to recover the debts.
Thanks
It is good that you have asked for paperwork before moving into the property. However, charge off is not similar to that of foreclosure. If the lender has charged off the loan, it means he is not interested in collecting the dues. If he has sold off the loan to a collection agency, then the collection agency can come after you in order to recover the debts.
Thanks