What Happens To Second Mortgage After Foreclosure On The First
Scenario:
I have a foreclosures soon to happen on my first mortgage. What happens to the second mortgage whether it is paid up to date? I was so silly that paid a company XYZ $1000 to negotiate a plan for paying the primary loan. they promised me that the first mortgage lender would surely accept their plan. But they dropped the ball and the primary lender won`t take anything. Now, it`s simply 10 days left for the foreclosures sale. The lender is just trying in charge it on me. Is there anyway I can get again the $1000? What`s going to happen when they sell off the home? Will the sheriff come and keep all my possessions if I`m still there in the property? I`m so upset, I could have used the $1000 towards the primary mortgage as a substitute of paying XYZ. What do you suggest now?
Solution:
Once the primary mortgage lender forecloses your property, he’ll sell it to the best bidder within the foreclosure public sale sale. The sale proceeds will probably be used to pay down your first loan after which the second. If there’s a shortage, and the first lender fails to retrieve your complete first mortgage balance, he may provide you with a time interval as per the state or financial institution laws after which you`ll should vacate the property. There`ll be a date set by the Sheriff on which he`ll come and evict you if at all you don`t move out.
Now, when the first lender carries out a foreclosure sale, the second mortgage lender can take the following steps:
File a deficiency judgment towards you if the foreclosures sale doesn`t cover your entire second mortgage loan balance.
File a civil judgment against you in court or garnish your income.
Bid for the property on the time of foreclosures sale in order to recover the money the second lender has invested.
Even after the first lender sells off property, the second lender can repay the required amount of cash to the primary and get again property on the end of the redemption period.
Apart from the steps above, the second lender also can charge-off any unpaid debt after getting part of the sale proceeds when the first loan is paid off. This signifies that the second lender considers the debt as uncollectible. But you still don’t lose your obligation to repay second mortgage after foreclosure.
A 2nd mortgage charge-off may have a destructive impact on your credit score. So, attempt to repay the charged-off debt and request the second lender so that he reports to the bureaus who can then update the status in your credit report as “Paid Charge-off” or “Settled Charge-off”.
In case you don`t repay the charged-off debt, it could be thought of as income and depending upon the state laws, you could have to pay tax on the unpaid debt. However, in case your lender forgives the unpaid debt, chances are you’ll not have to pay tax provided you qualify for tax aid on mortgage debt forgiveness.
What I recommend is, save up your money for rent because foreclosure is inevitable as it`s only 10 days left for the sale. Also, try to negotiate with the second lender in order that he accepts the amount you could pay off in simple installments. This will make it easier to avoid a charge-off being reflected on your credit report.
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on August 6, 2010. Filed under 
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