Home Loans and Support

My second mortgage became a charge off. What is that?

When you default on your second mortgage, lenders will generally charge off a second mortgage anywhere from 120-180 days after your first missed payment. This is an accounting term, that represents the filing of a loss by your lender, but this does not mean that the debt has been forgiven. The second lien is still attached to the property until you pay it off. Once a charge off on a second mortgage takes place, the debt will be sent to a collection agency or another third party to recover the debt.

Charge offs do not represent cancellations of debts; therefore you do not get a 1099-C form for a charge off on your second mortgage.

When you default on a first mortgage, anywhere from 4-12 months or more after you begin missing payments your lender will foreclose on the property. A charge off isn’t a good thing at all, but it provides a chance for you to pay it off if your still paying your first mortgage, or have paid off your first mortgage. To avoid having your account charged off, try working with your lender before hand. If it’s too late, work with the collection agency that your mortgage is transferred over to. A charge off does not mean foreclosure right away, but it could eventually.

A good option for homeowners with a charged off second is to attempt to settle the mortgage for a percentage of what is owed. Some lenders will be willing to accept anywhere from 5-20% of the remaining balance to settle the debt.

Effect on your Credit

A charge off typically takes a significant tole on your credit. This alone can easily bring down your credit score by 50 points or more.  It has some of the same effects as foreclosure would have on your credit, as it lasts on your credit report for up to 7 years if it goes unpaid. This is because if you fail to repay your debts far beyond the charge off, you may be enduring the foreclosure process as well. These effects represent that it is better to try and pay off the debt before the charge off occurs, or to pay it off as soon as possible after the account has been charged off. This will help you avoid any further repercussions.

If the property is foreclosed, the collection agency might reserve their right to sue you for the amount still owed on the second mortgage. Another piece of bad news is that anti deficiency laws generally do not apply to second mortgages and/or HELOCs. Lawsuits against second mortgage loans can occur both in recourse and non-recourse states. This is why it’s important to negotiate with the collection agency before you endure foreclosure. Alternative payment plans may be negotiated, depending on the collection agency.

This action is only removed from your credit report when the debt is paid back in full, and it will appear on your credit history for 7 years. You must request to all 3 credit bureaus that the mark be removed from your credit once you’ve paid off the debt, or it has been settled. If you get as far as getting your account charged off, take action immediately as credit is fragile and very difficult to build back up once it has been destroyed.


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My name is Maurice Bedard, but most people call me Moe. I am the founder of America's #1 Mortgage Forum, LoanSafe.org, and also a website design firm called We Create Web Designs. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications. I currently live in Carlsbad, California with my beautiful wife and children.

10 Responses to My second mortgage became a charge off. What is that?

  1. Brian says:

    In 2010, our primary residence (in Florida) had 2 mortgages with Bankof America. The 1st was foreclosed upon but successfully mediated. Loan was modified and we have not missed a payment. The mediation was only regarding the first. The 2nd never went thru the foreclosure process (no posting at the courthouse, served papers, etc).
    In Jan 2011 we received a 1099A from BAC on the 2nd. Contact with BAC told us that it was charged off and that no 1099C was going to be issued. My question is tax related: 1st Mgt was 30yr, 138K balance; modified it became $155k/40yr(1yr of missed payments added to total). 1099A says: Prin Bal: $56K; FMV 179K; Y-personally liable.
    What is my taxable gain (if any) on this? Also, should I even report it as a loss since FL allow 5 years for the lender to chase me?
    Really appreciate any guidance.

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  2. Maria Jamias says:

    Maria Jamias: Maria says:
    Your comment is awaiting moderation.
    January 16, 2012 at 8:05 pm
    Live in California. Had my 1st mortgage if $320K modified by my lender US Bank mortgage and payment is current. My 2nd mortgage of $80K was originally with Banco Popular bought out by Bank of America and now back to Banco Popular. I had been paying them my monthly mortgage although I have a past due amount of $1.9K representing 3 mos. payment. I never received any Notice of Default or any forclosure proceedings. I contacted them and they said my account is charge off. My property does not have anymore equity , it’s underwater. Is my second going to forclose my property? What are my options here. Please advise.
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  3. Maria Jamias says:

    Maria&#32:
    Live in California. Had my 1st mortgage if $320Kmodified by my lender US Bank mortgage and payment is current. My 2nd mortgage of $80K was originally with Banco Popular bought out by Bank of America and now back to Banco Popular. I had been paying them my monthly mortgage although I have a past due amount of $1.9K representing 3 mos. payment. I never received any Notice of Default or any forclosure proceedings. I contacted them and they said my account is charge off. My property does not have anymore equity , it’s underwater. Is my second going to forclose my property? What are my options here. Please advise.

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  4. Mark says:

    I purchased a home in Texas in 2005 with 100% financing. 80/20 loan. In 2007 I was laid off and missed several payments. Once back on my feet, I started making payments again and now all is fine. Bank of America put me thru ‘Loan Modification’ where they adjusted my payment on the 80% loan and they said they were going to ‘charge off’ the second. Sure enough, the 2nd went away and they no longer required payments on that loan. Now its time to sell my house. I just found out Bank of America has two liens on my house. One for the 80% loan and one for the 20% loan that was charged off. I called the bank and they said they show a 0.00 balance on the 2nd. My question is how to get the lien released on the 2nd? Is the bank going to ask for full payment on the 2nd if when I sell there is enough equity?

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  5. Bill says:

    We’re taking the Deed in Lieu option with our 1st and we *were waiting to hear from our 2nd mtg company on a settlement, when we unknowingly hit 180 days – and they automatically charged it off.

    My question is: is it better to negotiate a settlement (post charge off) with the mortgage company – in a continued effort to do a DIL with our 1st?

    Or the collection agency they might send it to?

    If they send it to collections – who releases the lien?

    (so I can prove to Mtg 1 that the property is free and clear)?

    Thanks in advance.

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  6. Evan Bedard says:

    Hello everyone,

    We apologize for not being able to get back to you sooner, we have thousands of members here going through similar events and we encourage you to post your story in our free forum here on Loansafe. There are many professionals and homeowners like yourself who will be more than willing to help answer any questions you may have. Below is a link to the LoanSafe forum.

    http://www.loansafe.org/forum/

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  7. JoAnn says:

    I was just turned down for a 1st mortgage modification. Second mortgage modification is still in the process. I am behind 2 months on each. I never let it get more than 90 days past due. First is with CitiMortgage, second with CitiBank.

    Is there any way to negotiate my way out of my second mortgage? I live in Wisconsin

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  8. Evan Bedard says:

    Hello Joann,

    Please join our FREE forum here on LoanSafe and you will find everything you need to know about settling a 2nd mortgage!

    http://www.loansafe.org/forum/debt-settlement/37996-strategy-settling-your-2nd.html

      (Quote)  (Reply)

  9. Brian says:

    We live in Colorado and have a 200k HELOC that was charged off when our income collapsed after having perfect credit for over two decades. We then consistently made small, mutually-agreed upon payments for over three years directly to the bank but hit another rough patch and missed a payment so our loan is now being handled by a collection agency (although the lender is still in control/ownership of the debt but just no longer accessible)
    We just negotiated a one year reduced payment plan with the “straw” collection co. that we can do. We have settled/paid off over 150k of unsecured credit card/medical debt since 2008 and intentionally chose to ignore bankruptcy (for better or worse!)and just fight it out (as long as our creditors would each work with us). This HELOC is now the 800lb gorilla in the room and I’m not sure what we can do about it.
    We were able to modify our first (it took almost three years and multiple declines)and there is now (due to an improving market) probably some equity
    against the HELOC. We could never get past a 70% settlement figure (but didn’t try that hard because we don’t have the cash)and our credit has been crushed this whole time….Any advice? Thank you very much!

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  10. Evan Bedard says:

    Hello Brian, if your 1st mortgage is still delinquent I recommend you not even consider doing anything with your 2nd until you reach a resolution on your 1st. Join our free forum here at LoanSafe.org/forum and you will find everything you need to know about your situation.

      (Quote)  (Reply)

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