Charge – offs / Write-offs are used by a lender to get a non-performing loan off the books, so that the lender can continue to operate towards a profit. These debts/loans are not forgotten, they are just placed in a different accounting category with every intention of still collecting the debt. A charge-off doesn’t mean that the borrower is off the hook for the debt. In fact, expect to get debt- collection calls. Second mortgages work the same way. Many mortgage-borrowers are frequently confused by the concept of a charge-off, especially when it is the second mortgage, not the first mortgage that is affected. Homeowners should consider a few things upon receiving a charge-off notice.

The charge-off is recorded on your credit report as such. Before this occurs, the lender has probably reported all of your delinquencies for the previous six to twelve months. Thus, the charge-off becomes a negative item on a credit report that drives down the credit score. In addition, the second-mortgage debt still exists and the lender still plans to recover the money. A lien is in place that will stop the sale or refinancing of the home. With the lien in place, the home can’t be sold or refinanced until both the first and second mortgages are fully satisfied. You must get permission from all lenders who hold mortgages before selling at a price below that needed to pay off both loans. In fact, the sale could result in a mortgage debt still owed after the sale. This is known as a deficiency judgment. When this happens, the borrower is still responsible for the debt. In many states, the left over debt becomes a deficiency balance or unsecured debt. Lenders can sue for this debt. And finally, don’t think a lender can’t foreclose after a charge off occurs. A lender is well within their right to foreclose on a mortgage if it is in default. Review your loan documents which include the “note” and the ‘mortgage” or “deed of trust” to learn exactly what the lenders rights are if you default.