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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?
Hi Elle!

Welcome to forums!

If you stop paying the second mortgage, then your second mortgage lender will charge off the loan and assign it to a collection agency. They will in turn contact you for the balance amount.

Feel free to ask if you've further queries.

Sussane
Posted on: 24th May, 2012 01:22 am
We called our mtg. company and hired a company to get us a modification on our 1st and 2nd but they only got us a modification for our 1st.we have not paid on our 2nd for year and 7 months. Our house is not worth what is was when we got 2nd. When we first got our 2nd the appraisal came back short then they did another one and it appraised for more. I have been in touch with our mtg. company and sent them 3 times the imformation they asked for and they keep telling me they did not get information. I even sent the first 2 so they had to sign for and faxed the last one.t[/b]
Posted on: 30th May, 2012 07:14 pm
what can we do?
Posted on: 30th May, 2012 07:17 pm
Hi Guest!

Welcome to forums!

There are high chances that the second mortgage lender may charge off the account and assign it to a collection agency. The collection agency may in turn collect the debts from you. If you want a loan modification, then you should be in constant touch with the lender and ask him to modify the loan asap.

Feel free to ask if you've further queries.

Sussane
Posted on: 31st May, 2012 11:34 pm
I had a forclosure in 2009, the property sold for 80K less than i paid for it. I had an 80/20 split. The 20 was with Wells Fargo. I no longer live in the United States. If i return what will i be facing???
Posted on: 10th Jul, 2012 08:31 pm
Hi Guest,

If the debt was forgiven by the lender, then you may face tax issues regarding the forgiven debt. If the debt was charged off by the lender, then the collection agencies can contact you for recovering the debt.
Posted on: 10th Jul, 2012 11:47 pm
i have a home equity loan that i can forsee that i will not be able to pay off when due. what should i do?
Posted on: 17th Jul, 2012 09:00 pm
Hi glwhite,

You can refinance your home equity loan along with your first mortgage so that you have only one loan to pay off. This might make things easier for you. However, you need to have equity in your property in order to get a refinance.
Posted on: 17th Jul, 2012 11:09 pm
Three years is up! Trying to purchase home and 2nd mortgage popped up unpaid! Settled and paid 10%! advised by realtor! To find out now we have to wait another three years! No ones accountable and now I'm out another $6000 and 3 more years! Any real advice would be great! I live in California!
Posted on: 31st Jul, 2012 06:57 am
Welcome Cree,

If the account is settled and paid off, then you shouldn't worry. You can apply for another mortgage and if you meet the required criteria, then you will qualify for the loan.
Posted on: 01st Aug, 2012 12:03 am
I am from Philadelphia. My wife died in January. Had a mortgage with on bank and a second with another. My name is not in neither one. I would like to keep the house. The house just got appraised and is under water. What can happen if I assume the first mortgage but can pay the second. Should I just let the house go since nothing is under my name, well only the homeowners insurance has my name on it with my wife's.
Posted on: 05th Sep, 2012 02:08 pm
Hi j!

Welcome to forums!

It will be better if you could get rid of the property since it is underwater. You should contact the lender and surrender the property.

Feel free to ask if you've further queries.

Sussane
Posted on: 05th Sep, 2012 11:02 pm
We own two homes, one is a house the other a Condo. The condo has a first of $625,000 and a second equity line loan of $247,000. The Condo is now underwater by about $150,000. If we short sell it, the second lender will not get all of his loan paid off. Can the lender come after our House because the house has some equity left.
Posted on: 09th Sep, 2012 11:44 pm
Hi Thomas!

Welcome to forums!

The second lender has the right to recover the mortgage in full. If you don't pay him off, he may file a lawsuit against you and get a judgment to place a lien on your house.

Feel free to ask if you've further queries.

Sussane
Posted on: 11th Sep, 2012 12:51 am
We have not paid our second for 3 years, We had filed chapter 7 and added our home into it, but ended up saving our home & our first loan was changed to a fixed loan and made current, they capitalized on what we were late on & late fees....I checked the county registry and our 2nd has no lien. We owe 447,000 on first & 200,000 on second. Home is worth 437,000. We have heard nothing from bank. Our second loan statements we receive reads that they cannot harass us with bill, but its just a notification that it is still due. We are back on our feet, but no way will be able to afford what we owe on our second now. Since first went up with lates fees, etc... we are able to pay, but still live tightly on funds. What repercussions can happen?
Posted on: 03rd Oct, 2012 01:15 am
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