What Happens To A Charged Off 2nd Mortgage After Foreclosure?

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,042
161
63
San Diego, California
www.loansreduced.com
If you’re a new visitor to our forum or a longtime member that has/or is working towards settling a 2nd mortgage, has a charged off lien or has a lien that is about to adjust this is an important article to read. Depending on the where you stand with this second mortgage it may haunt you for the future when trying to purchase a new home or refinance.

During the 2008-2012 crash homeowners stopped paying on these 2nd mortgages which were then transferred to debt collectors and ultimately charged off if no resolution could occur between the parties. There are also other cases where the liens were not charged off, values have started to increase and we are starting to see them taking action and foreclosing on homes.

I won’t be speaking of the legal ramification of the 2nd lien, I will however be talking about obtaining a new home loan after these situations occur or what needs to be done to qualify.

Having a charged off 2nd lien doesn’t mean that it just automatically disappears, I have had situations where borrower thought that the lien no longer exists once it’s charged off. There are also situations where the credit report shows a 0 balance but it is still in charged off status. This may still mean that a lien exists somewhere and if there is – it will be found. Unfortunately there is no easy way (or any way for that matter) for this to come up in the future when seeking financing for a new home or refinance.

This lien may not be something that is found through the initial qualifying part of your loan as all indicators point to it being satisfied unless disclosed to the person you’re working with. I always recommend a full disclosure otherwise it’s going to hurt you when it’s found out and you may already be in the middle of a transaction.

  • How long after a Charged off lien with no balance owed take to obtain a new mortgage?
    • 4 years
  • How long after a settled 2nd lien can you obtain financing?
    • 4 years for conventional, 3 years for FHA
  • How long after a charged off lien with a balance can you obtain financing?
    • Never with a refinance, 7 years after foreclosure
When planning for your future you want to take the right steps and measures when dealing with these 2nd mortgages. Even with bankruptcies, it may still strip the lien from the home but it doesn’t mean that you can refinance and not consider it a mortgage liability. This has been a very common occurrence recently and understanding what the consequences are important.

Please feel free to ask me any questions below on this thread.
 
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Paulac

LoanSafe Member
Feb 7, 2010
129
0
16
I filed chapter 7 in 2015. I had 2 mortgages an 80/20 sls being the 2nd. I didnt stay in the house or reaffirm anything. House foreclosed last year. Im getting offers to settle 2nd lien now. Im not going to respond. I rent but i want to buy a new house. I live in Massachusetts. Never gonna happen is it? Thought the debt was discharged in bankruptcy? Will i ever be able to purchase a home again?
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,042
161
63
San Diego, California
www.loansreduced.com
Hi Paulac,
I believe that I have dealt with this scenario personally, as long as there is no property for them to collect on and you reach the 4 year seasoning on a charged off mortgage we may be able to help.

Can you e-mail me when you get a chance at: [email protected] with what you're looking to accomplish along with what happened in the past and I can reach directly out to my underwriting staff and see what (if any) hurdles we need to jump over.
 

Paulac

LoanSafe Member
Feb 7, 2010
129
0
16
Thank you Erik, I will do that. appreciate it. I will get all my paperwork lined up and contact you.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,042
161
63
San Diego, California
www.loansreduced.com
Sounds great, let's get the initial blessing from the senior underwriter and once we have that it will supersede any other underwriters response as well. I would say honestly a credit pull would take care of that assuming it's showing the charged off lien. Because you filed bankruptcy my guess is the lien isn't showing up on credit. If that's the case send over what you have on the charged off lien and I can have it reviewed prior to pulling credit. Ultimately we will want to run a system called FraudGuard and that will help us see the dates of when everything occurred.