Unpaid Second Mortgage After Foreclosure

[WantAHouse2014]

Hello:  I was hoping to get some insight into our current situation.  I took out two mortgages to purchase a condo in NC.  One was for 90%, the other for 10%.  I lost my job in 2008 and after trying to work with the banks and having 3 short sale offers retracted because the bank didn't respond, I finally walked away.  Before doing so, I told both banks.  The second mortgageholder told me they would be writing off the debt.  I did not get any documentation of that write off.  The first lender foreclosed and title passed in December of 2010.  The second mortgageholder stopped reporting anything at all in March of 2009.  I've not gotten a bill or any communication from the second mortgageholder.

So, I am now just out of my 3 year seasoning period on the foreclosure, so I'm about to start talking with lenders to get another mortgage.  They are having some heartburn because the second mortgage (that hasn't had any reporting since March of 2009) is showing up as DELINQ90 by TransUnion and Equifax with a balance of a bit over $50,000.  This mortgage was foreclosed by the senior lien holder in 2010.  I would have thought that the second mortgage would have been closed out with the first mortgage which is listed as FORECLOS on the credit report.  Is that not the case?  Is this going to keep me from getting a home even though I've waited my three years?

If it helps, my middle FICO is 717 as of yesterday.   I have paid off all revolving accounts and have no car payment. My student loan payments are about $1200 a month.  My yearly salary is $135,000.  I'll be putting 11% down on an FHA loan, purchase price of about $400k. 

Any thoughts or advice would be so appreciated, I'm kind of freaking out!

[sunnysideup]

If the mortgage was foreclosed on, and there was nothing left to pay off the second lien holder, then unfortunately, they have every right to report that as delinquent 90+ days and they can show that balance.  The reason for that is that unless you filed a bankruptcy and included that amount, then you are still liable for that amount.  Just because you didn't get a bill or anything doesn't mean that you don't owe the debt.  If they wrote it off, they should have sent you something.  It's really going to boil down to the lender, and their overlay underwriting.  You may find a bank that can work around this if you can document the situation. 

I'm not an expert and have little experience with this situation, but if it were me, I would go to the courthouse and try to look up the documentation for the secondary loan/lien.  Find out what happened with it.  If you look by yourself, you don't make any waves with the lien holder and therefore, you don't wake any sleeping giants. 

For FHA guidelines, you can search for 4155.1 4.C.2.e Capacity Analysis of Collections and Judgments on google and it might give you a better answer to your situation - I really think it's going to depend on how it's reporting on your credit reports. 

With the holidays, there hasn't been as many of the "experts" on the boards, so try not to panic too much.....someone more qualified than me will come along hopefully and give you more help.  Good Luck!

[Peter1142]

I would be concerned even if you find a lender willing to ignore that you defaulted this, this is still debt owed and will require a payment plan which will seriously hurt DTI. It sounds like your old payment is still reporting.

[Teardrop]

I'm in a similar situation and was wondering what was your outcome.

I have a credit card for which I pay the balance off every month.  A HELC which has a balance of $26K which I'm hoping to be paid off by July 2014.  And I have my current home which I am in the process of getting ready to put on the market.  Its balance is around $172K.  I have no others debts and my yearly salary is around $136K.  I would be using a VA loan to purchase a new loan.

I foreclosed on 2 investment properties back in 2008 in which they both had 80/20 in GA.  I have found that GA is a recourse state and that I am still liable for the balance of the second loans since the sale of the property did not yield enough profits to pay off the second mortgage.

I am inquiring on whether this old debt will fall off my credit report after 7 years (2/2015) even though it is still showing as open.  I have dates being reported on my credit report for when the first mortgages are going to be deleted but none for the second.  Can anyone give me some guidance?

Also 'WantAHouse2014' were you able to get your loan approved with some underwriting?

[mynameainttracy]

I am in a similar situation as the OP. We BK'd in 2008 and foreclosed on an 80/20 in 2010. The 2nd mortgage was sold after we filed and the group that purchased it refuses to report correctly. They are reporting a balance, monthly due amount and past due amount. The loan officer I am working with has stopped us dead in our tracks until I can get it resolved.

I disputed it back in November and all the creditor did was increase my past due balance to make it look even worse. That scared me so I left it alone. Now I am having to dispute again and I am scared that they won't report correctly and I will have to go back to my attorney.

This house was located in NC.

[dreamer2014]

In the case of a short sale, the sr lien holder paid off the junior in my case resulting in acct pd however,  I had a realtor. Had that not been the case, I would still be responsible to the jr lien holder. I'm no expert but I don't see how a lender will work around that situation in this tight lending economy. Hopefully,  your situation has  eeen resolved. let us know how it turns out.

[StartingOver10]

Many of those second loans have been sold off to collections agencies.

You can negotiate for literally pennies on the dollar to pay off the debt. Naturally it would NOT be in your best interest to mention that you are going to sell your home or get a new home or refinance.

When you negotiate what you want is a complete satisfaction of the debt and prevent the collections agency from selling it to a new CA to collect the balance. The debt settlement figures that I hear most frequently in cases like this is in the 10% to 25% range.

You may want to engage an attorney to work for you on this. Make sure the attorney is a debtors attorney and NOT a creditors attorney. A BK attorney will suggest BK, so don't look there unless that is what you want to do. Make sure the attorney you engage is familiar with this type of negotiation.