Monday, March 11, 2013

Do Charged off Mortgages Fall under the Mortgage Forgiveness Debt Relief Act?

Question: Our home was foreclosed on several years ago. We had two mortgages with the same lender. The bank charged off the second mortgage and back-dated it for the same month as the foreclosure for the first mortgage. Is this charged off second mortgage something we should be concerned about or does it fall under the Mortgage Forgiveness Debt Relief Act?

Response: When the loan is charged off, it is generally just written off as a loss by the lender. It becomes unsecured and in most instances, lenders sell charged off loans to collection agencies for pennies on the dollar. Collection agencies will make money even if they settle with you for a penny more. It's a matter of bargaining. In your case, however, the property was already foreclosed on. It is very unlikely that they will be going after you other than for deficiency judgment (which lately has been waived by most lenders). Some charged off loans can be forgiven under the federal program but then it would state that and you would likely receive notice of that. I doubt anyone would retroactively be forgiving this loan on the property that was foreclosed on. If no one is bothering you, then just don't worry about this loan.

In the legal blog, Attorney Svetlana Kaplun addresses typical questions our firm has received from our clients, or come across from homeowners related to foreclosure, foreclosure defense, loan modification and bankruptcy topics.

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