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 Guest,
The second lender still holds the lien on the property though it was included in your bankruptcy filing. I don't think it was wiped off due to your bankruptcy filing. As you did not reaffirm your second loan, you are nor personally responsible for it. However, as the lender holds the lien, he may foreclose the property if you do not make the payments. It would be better if you could contact the lender and check out if you can get a payment plan to pay off the dues or if he can forgive the loan.
The second lender still holds the lien on the property though it was included in your bankruptcy filing. I don't think it was wiped off due to your bankruptcy filing. As you did not reaffirm your second loan, you are nor personally responsible for it. However, as the lender holds the lien, he may foreclose the property if you do not make the payments. It would be better if you could contact the lender and check out if you can get a payment plan to pay off the dues or if he can forgive the loan.
Same situations. First I/o balance 20k more than FMV, second an addtl 40k.
Greentree states they will not do anything. Only after Loan Mod with first mortgage will they be in a position to offer a payoff of MINIMUM 80%
Greentree states they will not do anything. Only after Loan Mod with first mortgage will they be in a position to offer a payoff of MINIMUM 80%
Thats correct. Secodn lender noramlly do not work on loan modification, until you have some thign goign on with the first
Since first owns majority, they want them to act first.
Which is logicval, since the loan modification of first can have bigger impact than the second one
Since first owns majority, they want them to act first.
Which is logicval, since the loan modification of first can have bigger impact than the second one
Sunny....your spellings! OMG!!! Why don't you use the spell check??? "Secodn ", "noramlly", "thign", "logicval" - Gosh! too bad. It changes the meaning of your answer and I don't think the poster would receive any help from your answer.
Who are you?
Login and post your comments
Login and post your comments
Well well well...I'm a guest and I don't think it's mandatory in this forum to login and post. I just googled my query and found this excellent website...but then your spellings were too confusing for me. I guess others also become confused...It's only that they don't let you know! Please use the option called "spell check" before posting...it's good for you as it would make your answers more acceptable to the posters.
my husband and i have a second mortgage. we did a chapter 7 bankruptcy and the 2nd was included. but in order to stay in the house and not have foreclosure we still must pay the 2nd. at this point i can't afford to pay. can they forclose and will we have to lose our home? we owe more on the 1st than the home is valued at.
hi guest,
If you stop making payments on your second mortgage,the second lender can do foreclose on the property. you have to speak to the lender about a short sale or deed in lieu.this will help you.
If you stop making payments on your second mortgage,the second lender can do foreclose on the property. you have to speak to the lender about a short sale or deed in lieu.this will help you.
Thats true
Check this out
http://www.mortgagefit.com/bankruptcy/chapter7.html#assets
Check this out
http://www.mortgagefit.com/bankruptcy/chapter7.html#assets
I have a first mort 225.balance and 2nd 52.balance they rejected my loan modification the 2nd but first gave me a loan modif for 24 month in june 1 my first mort payment goes back to 1500. a month makeing difficult to pay both mort total of 2000. a month not including escrow. IM PUTing house up for sale but I will only be able to sell for 190. the most. I want to stop paying my 2nd mort for i cant afford to keep paying it but im afrid that i will be floclose . i was told by several people that they can only put lien on house. help
Hi ana!
Welcome to forums!
If the second mortgage lender forecloses the property, then he will have to clear the dues of the first mortgage lender. As a result, most of time, the second mortgage lenders do not foreclose the property. However, they can charge off the loan and then a collection agency will collect the dues from you.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If the second mortgage lender forecloses the property, then he will have to clear the dues of the first mortgage lender. As a result, most of time, the second mortgage lenders do not foreclose the property. However, they can charge off the loan and then a collection agency will collect the dues from you.
Feel free to ask if you've further queries.
Sussane
I have one for anyone who can help! I have a first at 201k and second at 25K.. the house will only sell for maybe 199K (maybe). I got a huge paycut... now my wife and i just want out of the house.. we were told we don't qualify for a Load Mod to lower payments.. we haven't missed a payment in 3 years. We have money in our 401K and have about 10K cash.. we want to just get out of our house because we can rent better houses for half of our mortgage. Now to my question...
If we just stop making payments because we just want out of our house and we don't care about our credit ratings Can they take money from our 401K or our bank account? Will that affect a short sale?
If we just stop making payments because we just want out of our house and we don't care about our credit ratings Can they take money from our 401K or our bank account? Will that affect a short sale?
Hi JoeyU!
Welcome to forums!
If you stop the mortgage payments and walkaway from the property, the lender would initiate foreclosure actions against it. After the foreclosure sale, you would be responsible for paying the balance amount to the lender. If you cannot pay off the balance dues, then the lender may garnish your savings account.
You can check out the option of deed in lieu of foreclosure. This will help you in getting rid if the property and you won't be responsible for the deficient amount resulting from the sale. However, the credit effects in both these cases would be the same - your credit score would be lowered by 250 points.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you stop the mortgage payments and walkaway from the property, the lender would initiate foreclosure actions against it. After the foreclosure sale, you would be responsible for paying the balance amount to the lender. If you cannot pay off the balance dues, then the lender may garnish your savings account.
You can check out the option of deed in lieu of foreclosure. This will help you in getting rid if the property and you won't be responsible for the deficient amount resulting from the sale. However, the credit effects in both these cases would be the same - your credit score would be lowered by 250 points.
Feel free to ask if you've further queries.
Sussane
Smithsussane... Thanks for the reply. What if we took that out and put it into a safe deposit box.. We are going to try a short sale first but the second mortage GreenTree won't even think about working with us until we miss a payment. Plus they were completely rude on the phone. We are cash straped but getting out of this house will real help. Let me ask this.. would it be better to take 25K out of our 401K (which would be everything) pay the extra taxes and just get out of the house? Or keep the 401K and see if they come after us for the remainer?
garnishment on a savings account isn't an automatic thing - a creditor has to go through a process before it has the right to do that. a safe deposit box won't pay you any interest, but that's not much of a loss in comparison with what banks pay anyway, so you could do that. i'd keep your 401k money where it belongs - in the 401k.
