Can I get a home loan with an unpaid 2nd mortgage?

[crister]

Here's the situation...
We owned a home with a 1st and 2nd mortgage. The 2nd had a variable interest rate that kept increasing so we refinanced it. Then, a few years later (after 10 mos of unemployment) we were foreclosed on and obviously, since it was refinanced, the 2nd mortgage did not just 'go away' with the foreclosure. However, BOFA did stop taking auto-payments on the loan and removed our access to the account so we couldn't make payments. Suddenly we were expected to pay them the entire 22k (or thereabouts). We couldn't afford to pay even a quarter of that so we just let it go and did not thing about it.
Now, the account shows as a charge off on our credit but we've heard nothing from BOFA since.
However... now that we are closing in on 3 years past our foreclosure, we are entertaining the idea of purchasing another home.
My question is... is it possible to acquire a new home loan while the unpaid 2nd mortgage still exists on my credit report or do I have to figure out a way to settle this debt first? I certainly cannot afford the 85% that I keep hearing BOFA accepts. They'll be lucky to see 25% from me... if I am lucky enough to get them to agree to that.
I would really prefer to be putting my money towards paying down the balance on my one credit card debt left... or saving for down payment/closing costs on a new home. But, if I will only be rejected in the end because of this mortgage, I will do what I can to settle that first.

Thanks for any input you may have!

-Christine-

[Evan Bedard]

Hello Christine welcome and thanks for joining the community.

How long ago was the account charged off?

[crister]

According to my Equifax report, it appears they charged it off in April of 2010, so just over 2 years ago.
I am boggled at how they can charge off an account that I'd paid monthly through May of 2010, the very next month.
But I'm beyond that now ... just worried about the future

[Evan Bedard]

According to my Equifax report, it appears they charged it off in April of 2010, so just over 2 years ago.
I am boggled at how they can charge off an account that I'd paid monthly through May of 2010, the very next month.
But I'm beyond that now ... just worried about the future

If the charge off was two years ago yo may be able to qualify for a new mortgage at this time.. However, like you stated even though the debt has been charged off that doesn't mean it has disappeared.. Did you ever receive a 1099 for the 2nd after the foreclosure was final?

[crister]

Did you ever receive a 1099 for the 2nd after the foreclosure was final?

Nope... there was no mention at all of the 2nd in the foreclosure. I imagine this is because it was refinanced and not 'purchase money'. We lived in Arizona at the time and according to their 'rules', it appears that a refinanced 2nd does not get included in a foreclosure so we were stuck with it.

By the time we are house hunting, it will have been 3 years since the foreclosure but, since this debt is still ours to pay (albeit unfairly in my opinion), I'm afraid it will keep us from getting a new loan. I'd hate to get the rest of my credit in good shape in preparation and have this hold us back.

Also, do you know, will settling this debt put a ding in my credit score? Right now its just an untouched old charge-off... will bringing it to the surface again do damage?

Thanks.

[Evan Bedard]

Here is some information on AZ's anti-deficiency laws, but since it was a refinance I'm not too sure this law would apply to your case..

Arizona’s foreclosure “anti-deficiency” laws may be able to help protect you from any losses that you suffer as a result of losing your home to. The law is outlined in Revised Statutes, Title 33, Chapter 6.1, and its states that a borrower cannot be sued by their mortgage lender if the subject property is located on 2.5 acres or less and is a single family residence or duplex. If your property does not fit the above guidelines, the law says that your lender will have 90 days to pursue a deficiency judgment in order to recover any losses. If they fail to act within this time period, then they for fit the right to sue.

Arizona Foreclosure Deficiency Laws | LoanSafe

[crister]

Thanks for the info

[Evan Bedard]

If you do end up settling the account it will more than likely be updated and reported again as "settled for less than the full amount."

[crister]

If you do end up settling the account it will more than likely be updated and reported again as "settled for less than the full amount."

I understand that... I am just wondering what that will do to my actual credit score. If it's going to cause a drastic drop, I'd like to do it as soon as possible, to give myself more time to recover.

[Evan Bedard]

I understand that... I am just wondering what that will do to my actual credit score. If it's going to cause a drastic drop, I'd like to do it as soon as possible, to give myself more time to recover.

I do not believe there will be a drastic drop in your credit rating, but here check out the thread below as it contains many members here who have settled their second mortgage for less than they owe..

Success Stories in Settling 2nds

[crister]

Thanks. I'll check it out.