cancel
Showing results for 
Search instead for 
Did you mean: 

Charge Off Account In Good Standing Question

tag
torebuild2014
Regular Contributor

Charge Off Account In Good Standing Question

I have a friend who had an equity line secured by Real Property (house). During the housing crisis, the first mortgage foreclosed by he kept making payments on the second which was with a different lender. A few years went by before the second lender realized the secured property was closed and they immediately stop taking payments and charged off the account. It was never late or delinquent so the first deliquency shows up as a Charge Off. 

 

My limited understanding is Charge Offs usually follow late and deliquent payments after 90-180 days, so this is a very different scenario. Will this account 7 years begin at the Charge Off Date since the payments were in good standing up to the company charged off the account? 

 

Message 1 of 5
4 REPLIES 4
DebtStinks
Established Contributor

Re: Charge Off Account In Good Standing Question

I would imagine the reporting would cease approximately 7 years after the reported charge off. 

 

My question is the first mortgage has priority lien on the home and if your friend stopped making that payment, why did they continue making the 2nd/HELOC, etc payment. Any 2nd, 3rd, etc liens do NOT have priority and if they know the 1st lien has been foreclosed/charged off, it's almost pointless IMO.

 

Just my 2 cents.

 

Best of luck to your friend.

NFCU More Rewards AMEX $25000 (Opened 1/19) - NFCU Platinum $21000 (Opened 1/21) - TTCU Platinum Visa $10000 (Opened 10/18) - Discover $5500 (Opened 11/21) - Barclays View MC $5000 (Opened 1/19) - Capital One Platinum $3500 (Opened 2/19) - Capital One World Elite MC $1000 (Opened 3/21) - Target Store Card $2000 (Opened 10/18) - Floor & Decor Store Card $42500 (Opened 10/18)
Closed - PenFed $35,000 - Cap1 World Elite MC $11,200
Total CL - $115500

CH7 BK Filed 8/1/17 Discharged 11/7/17

Scores as of 2/18/21:




Inquiries Last 12 Months:
Message 2 of 5
torebuild2014
Regular Contributor

Re: Charge Off Account In Good Standing Question


@DebtStinks wrote:

I would imagine the reporting would cease approximately 7 years after the reported charge off. 

 

My question is the first mortgage has priority lien on the home and if your friend stopped making that payment, why did they continue making the 2nd/HELOC, etc payment. Any 2nd, 3rd, etc liens do NOT have priority and if they know the 1st lien has been foreclosed/charged off, it's almost pointless IMO.

 

Just my 2 cents.

 

Best of luck to your friend.


My understanding is that the 2nd was auto drafted and they continued to draft the payment for 3 years. I guess that my friend believed that they could continue to payoff the loan since they they were drafting the payment directly. It took almost 3 years for the lender to reconcile that the property was gone. The way I understand it is my friend was trying to mitigate additional damage to credit and acknowledged the debt. I don't believe they understood that they should have ceased the payments once the 1st mortgage went into foreclosure. Hard lesson to learn as continuing to make the payments extended the original debt secured by the loan by the 3 years of good payment. Once the lender realized the property was gone, they immediately stopped taking payments, would not offer or accept a settlement either and just did a charge off of the debt. There were not any notice of default or attempts to collect, and the debt was never sold either.

 

It is a scenario that I have personally not seen or heard of.

Message 3 of 5
RobertEG
Legendary Contributor

Re: Charge Off Account In Good Standing Question

You should begin by having the terms of your second trust agreement carefully reviewed by an attorney.

 

Many second trusts include a "cross-default provision," which puts the second trust in default should the first trust become delinquent.

Your assumption that the second trust account was in good-standing after default on the first trust occured may not be the case........

 

The fact that, when the second trust creditor became aware of default status of the first trust, they stopped payments under the original agreement and charged-off the balance is clear indication that they determined the second trust was also in default.

A debt must be delinquent in order to be charged to profit and loss.

Message 4 of 5
torebuild2014
Regular Contributor

Re: Charge Off Account In Good Standing Question


@RobertEG wrote:

You should begin by having the terms of your second trust agreement carefully reviewed by an attorney.

 

Many second trusts include a "cross-default provision," which puts the second trust in default should the first trust become delinquent.

Your assumption that the second trust account was in good-standing after default on the first trust occured may not be the case........

 

The fact that, when the second trust creditor became aware of default status of the first trust, they stopped payments under the original agreement and charged-off the balance is clear indication that they determined the second trust was also in default.

A debt must be delinquent in order to be charged to profit and loss.


Robert, that makes perfect sense to me. I will see if they have their original loan documents to look at the default terms. Based on the immediate defaulting of the account, I  presume that the you are correct and this was not determined based on the second trust payment default. Thanks for your response.

Message 5 of 5
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.