Second Mortgage in Charge-Off Status
- If you default on your second mortgage, the mortgagee can foreclose.
- Try to work out a forbearance plan.
- Bills.com offers additional information for people in default on their second.
What are the ramifications of a second mortgage in charge off status?
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?
Before addressing the central issues in your question, let us define charge off.
Charge-off (sometimes called write-off) is an accounting term used by creditors when they move a delinquent account from its accounts receivable books to its bad debt ledger. This usually occurs between 180 and 240 days from the date of the last payment. The fact an account is charged-off does not mean the debt may not be collected later. The charge-off date also does not correspond to the statute of limitations on collecting a debt, or the date that an entry on a credit record must be removed. All three dates or deadlines are independent of each other and have different meanings. I explain more about the ramifications of a second mortgage in charge-off status in just a moment.
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A charged-off account does not mean:
- The debt is canceled
- The debt is forgiven
- The creditor forfeits a right to collect the debt
The creditor may move a charged-off account to its own internal collections department, or sell the debt to a third-party collection agency.
Second Mortgage Foreclosure
Home loan lenders have the right to foreclose if you fail to make your payments for any mortgage. The fact a second mortgage is in a junior position to the first mortgage does not prevent the second mortgage lender from foreclosing.
Try to work out some sort of a payment arrangement with your lender for the second mortgage to avoid a foreclosure. The foreclosure process varies from state to state, but generally takes from two to 18 months depending on the terms of your loan and your state of residence. However, a good rule of thumb is the bank can proceed with the foreclosure process if mortgage payments are not received within 150 days. See the Bills.com Foreclosure Rules resource to learn the specific rules for your state.
If a foreclosure occurs, the second mortgage is paid after the first mortgage is repaid in full. If the sale price is less than the value of the mortgages held against it, then in most states you will owe a deficiency balance. The good news is a deficiency balance (if it exists and if your lenders pursue collections) is an unsecured debt you can enroll in a debt settlement program. However, some states outlaw the collection of mortgage deficiency balances. See the Bills.com Anti-Deficiency resource to learn the rules for your state.
Wrestling with a tough unsecured debt problem? Take your questions to the Bills.com Debt Coach for an online, no-nonsense, no-cost analysis of your options and the cost of each.
Here is the good news: Lenders don’t like to foreclose on mortgages. Foreclosures are costly, 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. To do so, however, communicate with the lender and be honest about your financial situation. The lender’s willingness to help with current problems will depend heavily on past payment records. If you have made consistent, timely payments and had no serious defaults, the lender will be more receptive than if the person has a record of unexplained late payments. If you are falling behind in payments or who know you are likely to do so soon, contact your lender right away about meeting to discuss alternative payment arrangements.
Loan Workout Plan
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. Therefore, 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 information page. See also Home Affordable Foreclosure Alternatives Program.
I hope this information helps you Find. Learn & Save.
I presume HFC promised to release the lien and any other claims against you in exchange for $8,000. If so, the deal you and HFC reached is called an accord and satisfaction.
Based on my interpretation of the facts you shared, you have a cause of action against HFC for breach of contract. Consult with a New Jersey lawyer who has mortgage litigation or civil litigation experience. He or she will advise you of your rights.
Great article. Thanks for the info, it's easy to understand.
HAMP loan mod 1st MTG with BOA (took 5 years - thankful). 2nd was with Greenpoint/GMAC, and last payment 7/2010. GMAC Notice of Acceleration 9/2010. GMAC charged off 1/2011. Greenpoint and GMAC are dead and gone (BK). No Statements/correspondence until 2013 from Ocwen noting they were the new service company. No statements or info from OCWEN until June 2016 when I received a letter from NCI (Ocwen's credit collection) with payoff that was ridiculous with fees and interest & without any explanation/debt schedule, and Ocwen charged off 6/2016 (per a letter they sent) . Also, no chain of title on County records - only shows Greenpoint (MERS as nominee) dated 2006, so I really have no idea who legitimately controls/owns the note. Statute of limitations in WA is 6 years however, there is confusing info if the SOL clock starts ticking from the last payment (7/2010) or notice of acceleration (9/2010), or is it 6 years from the maturity date of the loan (7/2021)? Issue: I want to settle. I am tired of this hanging over my head, and the property has significant equity. Issue #2: Ocwen is underhanded, and they have little to no information on the loan so I don't know if I can trust them to start settlement discussions. Issue #3: How can the same loan be charged off twice from different institutions? The only reason I ask, is because the last real "balance" I had on the note was with GMAC's charge off in 2011. Can Ocwen collect interest AFTER GMAC charged it off?
I am sorry that you are caught in such a tangled web.
I am not a lawyer, so please take my response as my opinion, but do not consider it legal advice.
Since both the date of acceleration and the date of last payment are beyond 6 years, it appears the SOL has past. The maturity date is irrelevant.
If a written settlement agreement is structured properly, it is binding and doesn't allow for an underhanded player to subvert it.
Charge-off is an accounting term that takes place after a number of months of default. It is possible for more than one lender to charge-off the same account, but usually that would require getting the loan back into good standing. Regardless the effect of two charge-offs is not a key issue. Charge-off doesn't prevent interest from accruing.
If, as it appears, the SOL has passed, you have stronger negotiating leverage, though the lender can stick to the lien on the property and wait for you to sell. One thing to research further is what can restart the clock on the SOL in your state. In some states, a verbal commitment to pay something on the debt is enough.
If the size of the GMAC origingated loan is large, I recommend speaking with a lawyer, at least to get clarity on the SOL and what to avoid so you don't reset the clock.