Home Loan After Second Mortgage Charge Off Guidelines

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This BLOG On Home Loan After Second Mortgage Charge Off Guidelines Was UPDATED And PUBLISHED On July 5th, 2020

What are the guidelines for mortgage repayment

Mortgage loan borrowers can qualify for a home loan after second mortgage charge off with no waiting period after the charge off depending on the mortgage loan program.

  • Homebuyers after second mortgage charge off is a commonly asked questions by many of our viewers at Gustan Cho Associates
  • Many home buyers with a prior foreclosure with a second mortgage charge off get different waiting period after second mortgage charge off answers by different lenders
  • This mortgage blog article will cover specific waiting periods after foreclosure and second mortgage charge off for various mortgage loan programs
  • FHA Loans and Conventional Loans have different mortgage lending guidelines when it comes to qualifying for home loan after second mortgage charge off and foreclosure

In this article, we will discuss and cover Home Loan After Second Mortgage Charge Off Guidelines.

How Does FHA View Charge Offs?

Borrowers can have charged-off accounts and qualify for an FHA Loan.

  • A charge off is when a creditor writes the bad debt off their books
  • When a debtor stops paying a creditor, the creditor will try to collect on their debt for the first 90 days
  • After 90 days, the creditor normally charges it off
  • Creditors can subcontract a third-party collection agency or sell the bad debt to a third-party collection agency if they believe that the debtor is collectible

The collection agency then can try to collect on the debt by suing the debtor.

Judgments After Charged-Off Accounts

They can try to get a monetary judgment and pursue collection activities such as wage garnishments, levying bank accounts, or placing liens on the debtor’s assets:

  • If the creditor believes that the debtor is not collectible because they have no job or assets and is judgment proof, the creditor can decide to write off the debtor’s unpaid account and deem it a charge off
  • A charge off is when a creditor writes the debt off their books
  • FHA Loans exempt charge offs
  • Borrowers can qualify for an FHA Loan with charged-off accounts
  • No portion of the uncollected debt will be used to calculate debt to income ratios
  • What happens to the second mortgage charge off accounts? 
  • Is there a mandatory waiting period to qualify for an FHA Loan after a second mortgage charged-off account? 

The answer is NO.

Second Mortgage Lien After Charge Offs

What is the second mortgage after release

If a homeowner forecloses on their home and has a second mortgage charged off, there is a three year waiting period after the recorded date of the first mortgage but no waiting period after the second mortgage charge off.

  • However, if the second mortgage lender charges off the second lien and the homeowner still owns the home, there is a second lien on the home even though the second mortgage has been charged off

The charge off needs to either be settled and/or paid off prior to and/or at closing.

Qualifying For A FHA Loan With A Second Mortgage Charge Off Account

Borrowers can qualify for FHA Home Loans with a second mortgage charge off account with no waiting period.

  • Second mortgages are not government loans and are portfolio loans funded by banks
  • The Federal Housing Administration does not have any waiting period after a second mortgage charge off account

Qualifying For A Conventional Loan With A Second Mortgage Charge Off Account

There is a seven-year waiting period after a second mortgage charge off account to qualify for a conventional loan.

  • Again, second mortgages are not government loans
  • But Fannie Mae and Freddie Mac treats second mortgages like first mortgages and a second mortgage charge off account is classified the same as a regular conforming loan foreclosure

Foreclosure And Charge Off Accounts On Timeshares

Which means excluding and writing off timeshare accounts

FHA treats timeshare foreclosures as consumer loans.

  • There is no waiting period after timeshare foreclosure to qualify for an FHA Loan
  • Unfortunately, most lenders consider timeshare foreclosure as real estate foreclosure and mandate a three-year waiting period
  • Gustan Cho Associates has no overlays on government and conventional loans and has no waiting period after a timeshare foreclosure

Home Loan After Second Mortgage Charge Off: Lender Overlays

Many mortgage lenders will not touch anyone with a second mortgage charge off. Lenders may give borrowers a last-minute mortgage loan denial when the underwriter reviews the second mortgage charge off.

  • However,  lenders with no overlays like myself can qualify borrowers for a home loan after second mortgage charge off

Borrowers who got denied due to a second mortgage charge off or have been denied for an FHA loan due to a timeshare foreclosure, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Borrowers can also email us at gcho@gustancho.com.

Please register and become a member of our Mortgage and Real Estate Forum and participate with our online members. A large percentage of our borrowers close on their home loan after second mortgage charge off.

Related> HARP With Second Mortgage

Related> Home Equity Line Of Credit

Related> Can Second Home Be Primary Home?

2 Comments
  1. Joel Bucklin says

    I have a 2nd mortgage on my primary residence in California for $87,720 that I haven’t made payments on for probably 10 years+. My SFR house is probably no longer underwater in regards to the first mortgage and could possibly or even likely cover the amount owed on the 2nd in a foreclosure sale. I am current on the 1st mortgage. The 2nd’s debt is beyond California’s allowable collection period (statute of limitations). I understand that the property still retains the debt. The note was recently transferred to Shellpoint Mortgage Servicing, Recovery Dept. I have learned that this company is a very aggressive debt collector. Questions:
    1) Because they are a new debt servicer of this note, does the CA statute of limitations against collection still apply?
    2) Can they still foreclose and is it likely or imminent that they will?
    3) Can I somehow pay this off with a reduced amount through a settlement?
    4) Do I owe additional interest for the past 10 years+?
    5) What if I do nothing for another 10 years, will I then owe that much additional interest when I sell or refinance?
    I’d like to remove/settle this encumbrance and am not currently considering bankruptcy. Please provide answers to all 5 of these questions or direct me to where I can obtain them. Thank you.
    Joel
    6/20/2020

    1. Gustan Cho, NMLS 873293 says

      Joel, here are the answers to your questions:

      1) Because they are a new debt servicer of this note, does the CA statute of limitations against collection still apply? The statute of limitations does not apply because it is a secured debt with a lien on the property.
      2) Can they still foreclose and is it likely or imminent that they will? If the creditor is an aggressive collection agency and knows there is equity in the property, they can enforce the lien and proceed foreclosure proceedings. However, this will most likely not happen because the creditor will need to pay the first mortgage to take possession
      3) Can I somehow pay this off with a reduced amount through a settlement? ABSOLUTELY. I would arrange a written payment agreement on a said negotiated amount and/or have a reduced amount negotiated and pay them off.
      4) Do I owe additional interest for the past 10 years+? Yes you do but the interest can be negotiated.
      5) What if I do nothing for another 10 years, will I then owe that much additional interest when I sell or refinance? As long as they have a second position lien, they can legally charge interest on the loan.

      If you foreclosed on the property ten years ago, the second mortgage would have been charged off with no lien position. Since you still own the property, you have a lien on the your home and there is no way that will go away unless the creditor releases the lien. Here are the options you have:

      1. Negotiate at a discounted amount
      2. You can do a cash-out refinance and pay off the lien at closing
      3. Explore bankruptcy options

      Hope this helps. Please let me know if you have any further questions.

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