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Jose Hernandez, SFR's Blog

By Jose Hernandez | Broker in Chicago, IL

What Happens When a 2nd Mortgage is Written Off?

What Happens When a Second Mortgage Is Written Off?


  • Write-offs are used to get uncollectable debts off the books, so that the 
    company can continue operating toward a profit. These debts are not forgotten, they are just placed in a different category in the hopes that someday the debt can be collected. Second mortgages work the same way. However, many mortgage-holders may be confused by the thought of a write-off, especially when it is the second mortgage, not the first that is affected. Homeowners should consider a few things upon receiving that write-off notice.
     
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  1. Significance

    • The banks write off a Second Mortgage after trying and failing to collect on the loan. A write-off does benefit the lender by allowing it to reclassify the debt from a receivable account to the bad-debt columns. However, the borrower is still responsible for the second mortgage owed.

      Considerations

      • The write-off is recorded on your credit report as such. Before this occurs, the lender has probably reported all of your delinquencies for the last six to 12 months. Thus, the write-off becomes one more negative item on the credit report that drives down the credit score. In addition, the second-mortgage debt still exists and the lender still plans to recover the money. A lien is in place that will affect the sale of the home.

        Home Sale

        • With the lien in place, the home can't be sold until both mortgages are paid off. This may mean selling the home for little to no profit at all. You must get permission from the lender or lenders who hold the mortgages before selling at a price below that needed to pay off both loans. In fact, the sale could result in a mortgage debt still owed after the sale. When this happens, the borrower is still responsible for the debt. In many states, the left over debt becomes a deficiency balance or unsecured debt. Lenders can sue for this debt.

          Home Foreclosure

          • An option before write-off is foreclosure on the second mortgage. This foreclosure on the second mortgage does not occur after the second mortgage is written off. A foreclosure takes up to 18 months to complete. Once the home is auctioned or sold, the first mortgage is paid off and then the second mortgage. This payoff process actually occurs no matter which mortgage lender forecloses. A lender can still foreclose on the first mortgage after the second mortgage is written off.

            Misconceptions

            • A write-off doesn't mean that you are off the hook for the debt. In fact, expect to get debt-collection calls. Your second mortgage can be written off as a result of a loan-modification plan that you have defaulted on. Lenders can also write off the unsecured debt or second mortgage left after foreclosure or sale failed to pay off the debt. The write-off only occurs when the debt is delinquent.

              Read more: eHow.com

              Financial Hardship? Financial Decision? 

              Jose Hernandez, sfr

              Coldwell Banker Residential

              676 N. Michigan Ave. Suite 3010

              www.ChicagorealestateSource.com

              312-788-7079




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