By Samantha Taylor
[dropcap]S[/dropcap]cenario: I have a foreclosure soon to take place on my first mortgage. What happens to the second mortgage if it is paid up to date? I was so stupid that paid a company XYZ to negotiate a plan for paying the first loan. they promised me that the first mortgage lender would surely accept their plan. But they dropped the ball and the first lender won`t take anything. Now, it`s just 10 days left for the foreclosure sale. The lender is simply trying to blame it on me. Is there anyway I can get it back? 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 towards the first mortgage instead of paying XYZ. What do you suggest now?
Once the first mortgage lender forecloses your property, he will sell it to the highest bidder in the foreclosure auction sale. The sale proceeds will be used to pay down your first loan and then the second. If there is a shortage, and the first lender fails to retrieve the entire first loan balance, he may give you a time period as per the state or bank laws after which you’ll have to 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 against you if the foreclosure sale doesn’t cover the entire second mortgage loan balance.
- File a civil judgment against you in court or garnish your income.
- Bid for the property at the time of foreclosure sale in order to recover the money the second lender has invested.
- 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 steps above, the second lender can also charge-off any unpaid debt after getting a part of the sale proceeds when the first loan is paid off. This means that the second lender considers the debt as uncollectible. But you still don’t lose your obligation to pay off second mortgage after foreclosure. A 2nd mortgage charge-off will have a negative impact on your credit score. So, try to repay the charged-off debt and request the second lender so that he reports to the bureaus who can then update the status on your credit report as “Paid Charge-off” or “Settled Charge-off”. In case you don’t pay off the charged-off debt, it may be considered as income and depending upon the state laws, you may have to pay tax on the unpaid debt. However, if your lender forgives the unpaid debt, you may not have to pay tax provided you qualify for tax relief on mortgage debt forgiveness. What I suggest 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 so that he accepts the amount that you can pay off in easy installments. This will help you avoid a charge-off being reflected on your credit report. Samantha Taylor is a contributing Financial Writer, Moderator and Community Mentor of MortgageFit (Largest Mortgage Community). She specializes in mortgage and real estate field.