2nd Mortgage Lien Charged Off in Corona Eastvale CA
Help.....I just received a charge off on my home equity line. What does it mean???
Homeowners who purchased a home with 100% or more financing have overall 2 or more loans attached to their property. In the majority of cases, the 2nd loan is typically a home equity. As homeowner defaults, the 1st loan takes the 1st lien position, and the 2nd loan takes the secondary position, and so on. During the subprime crises, most home values in the Inland Empire decreased as much as 55%, making it impossible for the 2nd lien holder to recover any portion of the delinquent loan. A home equity lien is an unsecured loan, making it even more difficult for the lender to recapture any of its losses.
These secondary liens are considered bad, unpayable liens by the lenders. To get these unpayable liens off their books, banks charge off these liens. A charge off, which is sometimes called a write-off, does not occur until a homeowner is 6 months or 180 days behind in their payments. This is an accounting term used by the lender when they transfer the delinquent account from their receivable account to the lender's internal collection account. Sometimes, lenders go right ahead and sell these unrecoverable liens to an outside collection agency. When a lien is removed from the lender's books, and the account is shown as having no balance due, a homeowner is still responsible and liable for the full amount of the debt. The lender still retains its right to collect the full amount owed. A lender can file a deficiency judgment against a homeowner even after the close of a shortsale or foreclosure. It depends on the law of the state and whether the loan was a recourse or a nonrecourse loan. A secondary loan is usually a recourse loan. So if you default on a 1st or 2nd loan, a lender can foreclose on the property.
Lenders don't usually like to foreclose on secondary lien due to the additional expenses that they are likely to incur. They would rather work out some payment plan with the homeowners to bring the loan current. If the default is caused by a temporary condition which can be corrected after 60 days. The lender will ask for extra additional payments every month for 12 to 24 months till the account becomes current.
If a homeowner is insolvent, they might want to consider selling the property thru a shortsale or deed in lieu of foreclosure. When a lender accepts a shortsale on the 1st mortgage, the lender is accepting less than what is owed, and the remainder debt is forgiven after the sale of the property. Usually, the 2nd lien holder is not able to collect any funds from the proceeds of the sale. A lender in possession of a secondary lien can and might want to file a deficiency judgment against a property owner even after a shortsale. So if possible, and when given the opportunity, settle the debt with the lender before a shortsale or foreclosure. When a lender settles or forgives the 1st or 2nd lien on the property, one should ask for written documentation as proof of the forgiveness and cancellation of the debt. Any debt that is forgiven is reported by your lender on a 1099C form, which might be taxed as income. Please make sure to consult an attorney to determine all your legal ramifications.
If you have received a charge off notice or your mortgage is in default, please seek the assistance of a professional shortsale real estate agent. They will be able to inform you of your options. YOU DO HAVE OPTIONS.
Contact me before your home goes into foreclosure. Call me today at 949-892-9677.