Advice on Second Mortgage in Charge Off Status - The Bills.com Blog
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Advice on Second Mortgage in Charge Off Status
Question: My husband is unemployed and we have fallen behind on our first and second mortgage. We have a plan setup that should take care of the first mortgage, but our second mortgage is in charge-off status. My question is would it be okay to let it get charged-off? What are the ramifications of this?
Answer: I strongly suggest that you try to work out some sort ofa payment arrangement with your lender for the second mortgage because if you go delinquent on your second mortgage, the lender can foreclose on your house and property. The foreclosure process varies from state to state, but generally takes from 2 to 18 months. It all depends on the terms of your loan. However, normally if mortgage payments are not received within 150 days, the bank can proceed with the foreclosure process. The 2nd mortgage would be repaid after the first mortgage is paid in full. In fact, if the sale price is less than the value of the mortgages held against it, then in some states you could still owe an unsecured balance called a deficiency balance. The good news is that this new deficiency balance (if it exists and if your lenders pursue it) is an unsecured debt that you could conceivably enroll into a debt settlement program.
Here?s the good news: Lenders and servicers don't like to foreclose on mortgages. Foreclosures cost more than can be made back, so lenders foreclose only as a way of limiting losses on a defaulted loan. If homeowners get behind on payments, lenders will most likely work with them to bring the loan current.
In order to do so, however, the owner must stay in communication with the lender and be honest about the financial situation. The lender?s willingness to help with current problems will depend heavily on past payment records. If the owner has made consistently timely payments and had no serious defaults, the lender will be more receptive than if the person has a record of unexplained late payments. For those falling behind in payments or who know they are likely to do so in the immediate future, they should contact the lender right away about meeting to discuss alternative payment arrangements.
An agreement between borrower and lender to prevent the loss of a home is called a loan workout plan. It will have specific deadlines that must be met to avoid foreclosure, so it must be based on what the borrower really can do to get the loan up to date again. The nature of the plan will depend on the seriousness of the default, prospects for obtaining funds to cure the default, whether the financial problems are short term or long term and the current value of the property. If the default is caused by a temporary condition likely to end within 60 days, the lender
may consider granting ?temporary indulgence?. Those who have suffered a temporary loss of income but can demonstrate that the income has returned to its previous level may be able to structure a ?repayment plan.? This plan requires normal mortgage payments to be made as scheduled along with an additional amount that will end the delinquency in no more than 12 to 24 months. In some cases, the additional amount may be a lump sum due at a specific date in the future. Repayment plans are probably the most frequently used type of agreement.
Foreclosure is a serious situation that has serious repercussions. If you can, you want to avoid a foreclosure as much at all costs. Bills.com is here to help. We also offer helpful guides, foreclosure FAQs, glossary terms, and other helpful tools to help you keep your home and avoid a bank repossession.
You can find more in depth information about foreclosures on our Bills.com foreclosure page on our foreclosure information page .
I hope the information provided helps you Find. Learn. Save
Best,
Bill
www.bills.com
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1. Posted by Dee on Monday 3rd March 2008 08:23
What if your second mortgage was in "closed/charge off" status and you are going through a "short sale" with your first mortgage company? They are the same company (first and second mortgage). What happens then?
2. Posted by Bill on Monday 3rd March 2008 15:57
A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure. If your lender has agreed for a short sale, then the remaining debt on the first mortgage will be forgiven. Now, even though the second mortgage is from the same company, they still might try to collect on it. I would clarify with the mortgage company to find out exactly what will happen in your case.
3. Posted by chaz on Tuesday 4th March 2008 19:16
My second mortgage has gone into charge off - I recieved a letter from a bil collector asking for a 50% settlement.. My question is what is the lien situation with my hone at this point? does the bill collector own the lien now? How does that that work? Charlie
4. Posted by Nathan on Wednesday 5th March 2008 08:53
I think you are referring to the title of your property when you say "lien situation". Your second mortgage company has secondary rights to your property, meaning, in the event of a foreclosure your primary mortgage will be paid first and the remaining funds will be applied to your second mortgage. Sometimes, lenders employ the services of a collection agency to recover past due amounts. This means that although you are getting calls from a collection agency, the title of your home is still held by the lender of your second mortgage. It might also be the case that the collection agency now owns the title as they bought the debt from the second mortgage lender. I think it is a good opportunity for you to settle the debt as the collector is giving you an opportunity to do so. Remember that charge off is only an accounting term used by these companies and does not mean that you are absolved of the debt. The lender may file a suit at any time even after a charge off status.