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?
I am located in Florida. We have a 1st ($70K) & a 2nd (176K)mortgage our house is worth about 130K. The 1st mortgage only has my name on it and the 2nd has only my wife's name on it. The house is in my wife's name only. Since my wife took out the 2nd mtg she has lost her job and had 2 children. She has no money in her name and she will probably not work again for another 15-18 years, so there wouldn't be any wages to garnish. I am not able to make the payments on the 2nd any more. If I stop paying the second mtg and they start the forclosure procedures, will the bank holding the 2nd mtg pay off the first mortgage before they can collect their money? If so will anything reflect on my credit report about a foreclosure?
Thanks
Thanks
Hi Guest,
If the second lender forecloses the property, then he will have to satisfy the mortgage dues of the first lender. This is because, the second loan is subordinate to the first loan. As the second lender is foreclosing the property, then I guess, your credit will not be affected. It is your wife whose credit would get ruined due to foreclosure.
If the second lender forecloses the property, then he will have to satisfy the mortgage dues of the first lender. This is because, the second loan is subordinate to the first loan. As the second lender is foreclosing the property, then I guess, your credit will not be affected. It is your wife whose credit would get ruined due to foreclosure.
i have a similar situation to many who've posted before. i have a first and second mortgage, and my home's current value is less than the principal on the 1st alone. the 2nd in particular has a ridiculous rate by today's standards, but i obviously can't refinance in this situation and both lenders are unwilling to modify.
given the amount of negative equity, if i default on the 2nd only i think it's unlikely they would proceed with foreclosure, but i'm curious what other negative consequences i would face. i'm okay with taking a hit on my credit score, but i've seen some mention of garnishment on here. can the lender garnish my wages, or just bank accounts? how easy and common is this for them to do? also, do the lenders typically post some public notice of foreclosure or auction, even if they do not proceed all the way through with a sale? my wife's not too crazy with the idea of the neighbors finding out, and i'm guessing an auction sign on our lawn would be a dead give away.
given the amount of negative equity, if i default on the 2nd only i think it's unlikely they would proceed with foreclosure, but i'm curious what other negative consequences i would face. i'm okay with taking a hit on my credit score, but i've seen some mention of garnishment on here. can the lender garnish my wages, or just bank accounts? how easy and common is this for them to do? also, do the lenders typically post some public notice of foreclosure or auction, even if they do not proceed all the way through with a sale? my wife's not too crazy with the idea of the neighbors finding out, and i'm guessing an auction sign on our lawn would be a dead give away.
Hi Guest!
Welcome to forums!
The second mortgage lender can foreclose the property but he will have to pay off the dues of the first mortgage lender. If he does not foreclose the property after your payments are past due, he would simply charge off the loan. Then a collection agency would collect the dues from you. This will definitely lower your credit score. If the lender does not charge off the loan, then he can garnish your wages or your savings account.
As far as foreclosure is concerned, the lender will send you a pre-foreclosure notice.
Sussane
Welcome to forums!
The second mortgage lender can foreclose the property but he will have to pay off the dues of the first mortgage lender. If he does not foreclose the property after your payments are past due, he would simply charge off the loan. Then a collection agency would collect the dues from you. This will definitely lower your credit score. If the lender does not charge off the loan, then he can garnish your wages or your savings account.
As far as foreclosure is concerned, the lender will send you a pre-foreclosure notice.
Sussane
I feel for you all posting here. I am in a similar situation. My mom and I bought our home back in March 2006. The house is in mom's name.. I'm only on the deed. My Mom's income is from SS and Navy Annuity which is about $2200 a month. I had been working at the time and was doing pretty well but lost my job back 2 years ago. Now I'm no longer qualified for the work I was doing so we're now living on Mom's income alone.
We were able to keep up on our 1st and 2nd with me receiving unemployment benefits, roommate etc. We were able to remodify our 1st (which was then with Countrywide) in May 2009 and then the loan was sold to BOA. We've been able to keep up with our 2nd which is with Greentree.
We're now behind 2 months on our 1st.. we're trying to work with them. Mom has cashed out her few life insurance policies so that will catch us up with missing Oct and Nov. We've been working with the HOPE program and when we last spoke with them (they had BOA on the phone as well) they said if we got those payments to them they'd work with us. They also mentioned that if Mom stopped paying on her credit cards that would bring our deficit down to where they could get us into their help program. They also spoke about their forebearance program.
Our house is underwater. We owe $263k on our 1st and $65k on our 2nd.
Thing is.. my Mom is 90. I'm her caregiver. My older brother is helping us in regards to bankruptcy for her credit cards which equal about $28k. She's at the age where her short term memory is shot. My nerves are a wreck as well as hers. At this point I feel disabled.. my hands/head shake and am in a deep state of depression with having to worry about all this plus take care of Mom.
expenses and her SS and Navy Annuity are now being direct deposited into my checking account (which is now a joint acct but she have access to it).
Sorry this such a long post but I at a loss and need help.
We were able to keep up on our 1st and 2nd with me receiving unemployment benefits, roommate etc. We were able to remodify our 1st (which was then with Countrywide) in May 2009 and then the loan was sold to BOA. We've been able to keep up with our 2nd which is with Greentree.
We're now behind 2 months on our 1st.. we're trying to work with them. Mom has cashed out her few life insurance policies so that will catch us up with missing Oct and Nov. We've been working with the HOPE program and when we last spoke with them (they had BOA on the phone as well) they said if we got those payments to them they'd work with us. They also mentioned that if Mom stopped paying on her credit cards that would bring our deficit down to where they could get us into their help program. They also spoke about their forebearance program.
Our house is underwater. We owe $263k on our 1st and $65k on our 2nd.
Thing is.. my Mom is 90. I'm her caregiver. My older brother is helping us in regards to bankruptcy for her credit cards which equal about $28k. She's at the age where her short term memory is shot. My nerves are a wreck as well as hers. At this point I feel disabled.. my hands/head shake and am in a deep state of depression with having to worry about all this plus take care of Mom.
expenses and her SS and Navy Annuity are now being direct deposited into my checking account (which is now a joint acct but she have access to it).
Sorry this such a long post but I at a loss and need help.
I have two notes on my house , one for 289,000 and one is for 73,000, both companies do not want to do a modifications as they are very hard to work with.
I have not been late in 3 years with any of my payments to them, my financial situation has changed, should I just stop paying them ?
I have not been late in 3 years with any of my payments to them, my financial situation has changed, should I just stop paying them ?
Hi,
To rhiannonja,
I think you would like to save the property. In that case, you should opt for the option of forbearance or loan modification. However, if the credit cards get delinquent, then they can sue your mother for it. I would suggest you to negotiate with your lenders and check out if they can help you in getting a forbearance.
To tony,
If you stop making the payments, it would have a negative effect on your credit credit score. I would suggest you to negotiate with your lenders once again and check out if they can agree to your request. If not, then it would be a better idea to sell off the property through a deed in lieu of foreclosure.
Thanks
To rhiannonja,
I think you would like to save the property. In that case, you should opt for the option of forbearance or loan modification. However, if the credit cards get delinquent, then they can sue your mother for it. I would suggest you to negotiate with your lenders and check out if they can help you in getting a forbearance.
To tony,
If you stop making the payments, it would have a negative effect on your credit credit score. I would suggest you to negotiate with your lenders once again and check out if they can agree to your request. If not, then it would be a better idea to sell off the property through a deed in lieu of foreclosure.
Thanks
My husband has a business, he took a equity loan on the house for his business. Now he can't pay the loan and now they want to put a judgement on the business as well as him and the house. They have lost the paper work. Said they have misplaced it all. Should we contact an attorney? What should we do. We are having problems paying for 1st mortgage(up to dat), second morgage is in default. Now this.
who has the lien if collection agency has the loan? Bank or Collection agency?
where did you see that a collection agency has any involvement?
canandian, i think it would be a reasonable thing to speak with an attorney in this regard - perhaps you'd need those services, perhaps not. but you can figure that out by at least having a chat with one.
canandian, i think it would be a reasonable thing to speak with an attorney in this regard - perhaps you'd need those services, perhaps not. but you can figure that out by at least having a chat with one.
Hi!
Welcome to forums!
To Canandian,
You should definitely consult an attorney as your mortgage lender has lost the loan documents. If there are no mortgage docs, the lender will not be able to place a lien on the property or on your husband's business.
To phillipallcom,
If your loan has been sent to collections, then the collection agency will hold the lien on the property. You will pay off the dues in order to make your property free and clear.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
To Canandian,
You should definitely consult an attorney as your mortgage lender has lost the loan documents. If there are no mortgage docs, the lender will not be able to place a lien on the property or on your husband's business.
To phillipallcom,
If your loan has been sent to collections, then the collection agency will hold the lien on the property. You will pay off the dues in order to make your property free and clear.
Feel free to ask if you've further queries.
Sussane
I have a first mortgage and a second quity loan of credit. I have received an offer to purchase on my home that will cover the first but not the second. However, I am willing to pay off the second (line of credit) on my own. Will a second lender be willing to work with me? I can afford to pay the second but it will no longer be attached to the home if I sell it?
blue i cannot imagine that a second mortgage lender wouldn't be willing to work with you in a circumstance such as that. otherwise, they stand to lose money, and compound that with costly litigation in trying to get their money back.
by all means, contact them and let them know how you stand. i will be surprised to hear that they don't accept such a gracious offer on your part.
i hope you'll keep us posted.
by all means, contact them and let them know how you stand. i will be surprised to hear that they don't accept such a gracious offer on your part.
i hope you'll keep us posted.
I a private lender for a 2nd mortgage. The homeowner has not paid there first mortgage and the bank foreclose on them do I have any recourse. I can't afford to paid off the first mortgage. The house is in a bad shape, mold and the last time I look the house has been vacated for more than a 9 months.
butterball, it appears you aren't going to be able to do much here. have you hired an attorney? that's a good idea. in fact, it's essential, so that you'll know your rights and responsibilities