Posted by David Butler on December 28, 2009 at 12:46:22:
In Reply to: When a loan is charged off posted by G.O. on December 26, 2009 at 01:08:23:
Hello G.O.
If your second mtg lender has "charged off" the loan, it means he's declaring the debt as uncollectible. That does not however, make the debt void. So, the lender will no longer collect payments from you. But this doesn't mean that you don't owe the money.
Not sure what you are referring to with regard to the loan being "... recorded (in the Registry) as discharged."? Generally, the lender only reports the debt as a loss when he files a Profit and Loss Statement (for his company) with the Internal Revenue Service, and required public disclosures by SEC or similar regulators. Curious as to the "Registry" you are referring to? What is that, and what state is the property in?
Until the time of the actual foreclosure sale, the Subject Property retains the 2nd lien -- i.e. the charge-off does not remove the second lien from your property - unless you pay it off. So normally, if the charged off account is sold or assigned to a collection agency (as is generally the case) that will attempt to collect the payments, the collection agency now steps into the original creditor's shoes, including holding the junior lien position against the property. The debt hasn't been canceled or forgiven.
The loan being "charged-off" doesn't automatically become an unsecured debt, unless - and until - the underlying collateral has been sold off at foreclosure by a creditor senior to the junior position lienholder. Similarly, when a second loan is charged off after a foreclosure/short sale on the property, the mortgage is considered as an unsecured debt, since the collateral has been sold off already through the foreclosure.
In that instance, it would not become a lien again, until the lienholder obtains a judgment, and files the judgment with the County recorder's office in the county where debtor lives. Then it becomes a general lien, in the absence of a court order specifically attaching it to any other real estate the debtor might own. But, most title companies would require that lien to be settled before issuing title coverage on a transfer, so the practical effect of the judgment is that it generally acts as a lien.
Hope that helps, and best wishes for the Holidays.
David P. Butler
- Re: Charge-offs Still A Debt and... G.O. 12:00:33 12/29/09 (1)
- Local T Co probably best resource John Merchant 12:24:26 03/01/10 (0)