Haven't Paid Second Mortgage in 10 Years? What You Can Expect Next

If you haven't paid your second mortgage in 10 years, the lender can start taking serious action against you. The lender can file a lawsuit against you to collect the debt.

You'll likely receive a summons from the court, which is a formal notice that a lawsuit has been filed against you. This is usually served by a process server or sheriff's deputy.

The court will then schedule a hearing, where you'll have to appear in front of a judge to discuss the debt. Don't worry, you can still try to work out a payment plan or settlement with the lender before the hearing.

A zombie second mortgage is a type of mortgage that still exists even though the borrower hasn't made a payment in years.

It's essentially a second mortgage that was created when a homeowner took out a home equity loan or line of credit, but never made the payments.

The term "zombie" comes from the fact that the mortgage is still technically alive, even though the borrower has abandoned it.

These types of mortgages can be a result of a homeowner taking out a second mortgage to pay off debt or cover living expenses, but then struggling to make payments.

They can also arise from a refinancing or consolidation of debt, where a homeowner takes out a new loan that includes the existing second mortgage balance.

Zombie second mortgages can be a major problem for homeowners, as they can lead to foreclosure and damage to credit scores.

Your credit score will take a significant hit if you default on your second mortgage, and it's not just a temporary setback - it's a long-term consequence that can affect your financial future.

You'll be paying a lot more for credit if you can get any, because defaulting on a mortgage is a major red flag for lenders.

Living without credit cards is one thing, but credit can help you in a pinch, like when you need a new car to commute to work.

If you continuously default on your second mortgage, your credit will drop, and lenders may not finance a vehicle, making it harder to get the transportation you need.

You can't ignore your second mortgage forever, but the good news is that you may have some rights that can protect you. In some cases, you may be able to request a loan modification or temporary hardship program.

The lender may be willing to work with you if you've been making payments on your first mortgage, which is often the case. According to the article, homeowners who have made payments on their first mortgage may be eligible for a loan modification, even if they haven't made payments on their second mortgage in 10 years.

However, if the lender has already filed a foreclosure lawsuit, your options may be limited. The court may be able to grant a summary judgment in favor of the lender, which can lead to a quick foreclosure.

Second lien creditors have the right to initiate foreclosure, and this right isn't blocked by the existence of a first mortgage.

It's a common misconception that a second lienholder can't foreclose while the first mortgage is current, but this assumption is totally false. Second lienholders can indeed start the foreclosure process.

To initiate foreclosure, a second lienholder simply needs to absorb the cost of the process. Once the property is sold at auction, the second lender must pay off the first mortgage balance before they can recover any proceeds from the sale.

It's easy to think that because seven years have passed since the real estate crash, the risk of foreclosure is low. The real estate crash happened seven years ago, and since then, property values have generally been rising. This rising trend is crucial to understand, as it increases the risk associated with defaulted second mortgages. A rising property value can make it tempting to think nothing will happen in the future, but that's a mistaken attitude. The risk of foreclosure is actually higher when property values are rising. The value of the home has risen, and it may now be partly underwater or even have positive equity again. This is a higher risk for lenders to attempt to recover their loss via foreclosure.

In many states, people assume that a four-year statute of limitations means they're safe from lenders after a few years of non-payment. The truth is, this only applies to situations where a home has already been lost to foreclosure and a residual deficiency balance remains.

If you still live in the property and it hasn't been foreclosed on, the second lien remains intact. The lender still has a right to foreclose, regardless of how long you haven't paid.

A common misunderstanding is that the statute of limitations can protect you from foreclosure. However, this is only true if the property has already been sold and the lender is trying to recover an unpaid balance.

There is no statute of limitations for active property liens. This means the lender's rights remain in place, even if you haven't paid the second mortgage in years.

You may be wondering what an underwater mortgage is, and how it relates to not paying a second mortgage in 10 years. An underwater mortgage occurs when the value of your home falls below the amount you owe on your mortgage.

According to the article, nearly 1 in 5 homeowners in the US are underwater on their mortgages, with a median loss of $10,000.

This can happen when the housing market declines, causing your home's value to drop.

A property can be considered "underwater" when its value is less than the total mortgage debt, including both the first and second loans. This can happen even if the first mortgage is paid current, but the second mortgage is defaulted.

If a home is fully underwater, meaning its value is less than the balance owed on the first mortgage alone, foreclosure is unlikely because the lender would lose money by proceeding. For example, if a home is worth $300,000 but owes $350,000 on the first mortgage and $50,000 on the second mortgage, the lender is unlikely to foreclose.

However, if a property is partly underwater, the situation is different. This occurs when the home's value covers some of the second mortgage debt, but not all of it. For instance, if a home is worth $400,000 and owes $350,000 on the first mortgage and $100,000 on the second mortgage, there is $50,000 of equity covering the second mortgage, making it a risk for foreclosure.

In some cases, a property's value can bounce back, making it no longer underwater. But even then, the risk of foreclosure remains, especially if the second lienholder can recover some or all of the second mortgage debt through foreclosure. For example, if a home is worth $500,000 and owes $350,000 on the first mortgage and $100,000 on the second mortgage, there is $50,000 of positive equity, making it a target for foreclosure.

As you navigate the complex issue of underwater mortgages, it's essential to consider the mountain of interest that comes with these loans. Many homeowners are stuck with mortgages that exceed the value of their homes, leaving them with no choice but to accept a loss.

The average American household has seen a 23% decline in home value since 2006, making it difficult for homeowners to refinance or sell their properties.

For example, a homeowner who purchased a $200,000 home in 2006 and now owes $250,000 on their mortgage is in a precarious position. They're essentially paying interest on a debt that's larger than the value of their home.

The consequences of underwater mortgages are far-reaching, affecting not only the homeowner but also the entire community.

You might think you're off the hook after 10 years of not paying your second mortgage, but the risk of foreclosure is still very real. The real estate crash happened seven years ago, but the property value has been rising since then, increasing the risk of default.

This rising property value can turn a lender's attention back to the defaulted second mortgage, even if it seemed like a non-issue for a while. The lender may now see a chance to recover their loss via foreclosure, making it crucial to address the debt.

The longer you wait, the higher the risk of foreclosure becomes. It's not just about the original value of the property, but how it's changed over time. If the property was initially worth less than the first mortgage alone, its rising value can make it more attractive to the lender.

The fact that there's been little to no collection activity in the past 10 years can lull you into a false sense of security. But don't assume nothing will happen in the future, because the risk of foreclosure is still very much alive.