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Second-mortgage charge-offs: what they are and how they work
Foreclosure of your first mortgage results in your second mortgage being cancelled as well. Despite the elimination of the second mortgage lien, the second mortgage debt did not. A unsecured loan was instead obtained. Your second mortgage lender decided to charge off your debt when you stopped making payments on your second mortgage. Whenever you have not made a payment for 180 to 240 days, a charge off is usually the result.
When the lender charges off a debt, they are writing it off their books; however, they are still eligible to collect the debt. Even though the lender did a charge off, the debt remains legally valid.
If a credit card charge is canceled, what happens next?
Charge-offs are most often sent to collection agencies after the creditor charges them off. That agency will probably make repeated calls and send letters to you to in an attempt to collect the debt.
Depending on the nature of your charge-off, you have several options
After a lender charges off your second mortgage and sends it to collections, you have a few options. Your options include:
Unless the debt is paid in full, make monthly payments
Alternatively, the collection agency will sue you for money judgment if you don’t pay the debt off in full.
Defend yourself from Collection Agencies by not paying
It generally isn’t recommended to ignore the debt and let the suit unfold. If the collection agency wins the lawsuit and gets a money judgment against you, it may typically collect this amount using regular collection methods, like garnishing your wages or levying your bank account.
If the collection agency cannot get anything from you — you are “judgment proof” — and this situation will continue for years to come, then it might make sense to do nothing. It may be temporary to be judgment proof. Financially, you might be able to improve. Before you decide, speak with a lawyer. If the statute of limitations has expired, or if the creditor lacks the legal right to sue (called “standing”), you might have a defense to the suit.
As an alternative, filing for bankruptcy can assist in reducing or eliminating such debt.
Pay off your debts
In the event you are unable to pay your monthly payments or come up with enough cash to pay off all the debt, you could negotiate a settlement for a smaller amount than you actually owe. A debt settlement offer from a creditor may be as low as 10%-20% of its remaining balance. Any forgiven amount may be subject to taxation.
A debt settlement attorney may be able to assist you in settling a debt resulting from a charged-off second mortgage.