To collect the unpaid debt, a civil or deficiency judgment could be filed by the second mortgage lender. If he or she fails to recover entire loan balance after first mortgage foreclosure then he or she can issue a charge-off.
I have a foreclosure going to take place on my first mortgage. If it is being paid up to date then what will happen to the second mortgage? It was foolishness on my part that I paid a company XYZ $1000 to negotiate plan to clear first loan. They managed to assure me that the first mortgage lender will accept their plan. But things didn’t shape well and first lender has refused. I am left with 10 days for foreclosure sale. The lender is shifting blame on me. Is there any method by which I can get back my $1000? What will happen when they will sell off the house? Will sheriff come and keep my possessions if I am still there in the property? Am very much upset, I could have utilized that money in paying my mortgage in place of giving it to the XYZ. What do you suggest?
Solution: Once your property is being foreclosed by the first mortgage lender, he is going to sell it to the highest bidder in foreclosure auction sale. From the sale your first loan will be cleared first and then second. If it is not enough and the first lender fails to retrieve his entire loan balance then he will give you some time according to the state bank laws following which you will have to vacate the property. Now you will get a date for the vacation and if you failed to vacate your place then sheriff will come and evict you.
While the first lender is carrying out a foreclosure sale, the second mortgage lender can follow certain tips.
He should file a deficiency judgment against you if foreclosure sale doesn’t cover the entire second mortgage loan balance.
1. Can file a civil judgment against you in court or garnish your income
2. Should bid for the property at the time of foreclosure sale to recover the money he has invested.
3. Even after the first lender sells off property, the second lender can pay off the required amount of money to the first and get back property at the end of the redemption period.
Apart from the above steps, when the first loan is being paid off, the second lender can also charge- off any unpaid debt after getting a part of sale proceeds. It conveys that the second lender find the debt as uncollectible. But still you have your obligation to pay off second mortgage after foreclosure.
However, a second mortgage charge-off will have a negative impact on your credit score. So clear your charged off debt and make a request to the second lender to update your status so that he can direct your bureaus to update your status on you credit reports as” Paid charge Off” or “Settled Charge Off”.
However, if you don’t pay charged-off debt, it will be considered as your income and according to the state laws you will be asked to pay tax on unpaid debt. If your lender waives your unpaid debt you will not have to pay the tax if you qualify for tax relief on mortgage debt forgiveness.
What I would suggest you here is that save your money for rent as you are left with only 10 days for the sale. Also try to convince your second lender so hat you can make payments to him in installments. This step will help you in avoiding a charge off being reflected on your credit report.