What’s Going on With My Second Mortgage? Did They Settle Or Not? – Greg

“Dear Steve,

I owned a home in Arizona but had to move due to a job change. I continued to pay for 2 years in hopes that the market would turn and I could sell it, after which I turned to a short sale to be free of it.

The primary bank accepted the sale but the second wanted something (we owed about $13889 on the second. The primary agreed to move 3k to the second and we added another 2k for a total of $5,000. The second agreed to settle and the sale went through.

Now on my credit report I am seeing something from the second that I am not sure is valid.

This on the primary:
“Freddie Mac account, Account paid for less than full balance”

And a zero balance.

But on the second I see this:
“Charged off account” and it still shows a balance

I thought this debt was ‘settled’,

Is the second reported correctly?

Do I have any case to have it say otherwise?

Note: Since this is in AZ, they cannot come after me for the balance since the entire amount was purchase money (I had originally got both first and second with the primary bank (citi), but then moved the second to the credit union for a better interest rate but did do nothing but move it.

I have attached the closing letter on the second as well as a notarized document we created when the second asked for a document saying we would pay the 2k.

Thanx so much, I am at a loss here and dont know if there is anything I can do.

Greg ”

Dear Greg,

Thank you for providing me with your supporting documentation on this including the letter from the credit union which appears to have been the second mortgage holder.

What concerns me in their settlement agreement is they say “Please de advised [credit union] reserves the right to pursue any deficiency in relation to this Short Sale and will not waive any rights, recourse or remedies in pursuit of the same.” This is part of their agreement they generated for you on December 2 and appears to be in response to your offer on November 17 in which you proposed they waive their rights to pursue deficiency judgments. It appears they did not agree with that proposal.

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So what it appears to me to be is that the credit union has charged off the remaining balance and has reserved the right to go after you for the balance due. When a debt has charged off it does not mean the debt is forgiven. Charging off is merely an accounting function to report bad debts. In fact, even if the credit union issued you a 1099 to report the forgiven debt to the IRS it does not waive their right to collect the balance and forgiven debt at a latter time.

I think the best thing you can do now is to contact the credit union and ask them for some written statement they will not pursue you for the balance due and correct the credit report to reflect a $0 balance. If they won’t give that to you then at least you know what may be coming and can deal with it then.


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Damon Day - Pro Debt Coach

Steve Rhode

3 thoughts on “What’s Going on With My Second Mortgage? Did They Settle Or Not? – Greg”

  1. So Happy Day!

    When I first noticed this on my credit report I put in a dispute that I was no longer responsible for this account and added both documents in support of this.

    I have also been trying to call the credit union since I first talked to them (they were going to get back to my on taking me to collections), they have not returned my calls for the last three weeks and I was about to send a letter.

    But today I got a notice that my dispute was complete, and to my wonderful surprise, the negative account has been removed!

    I just pulled my credit report and cannot find that account anywhere!

    Now I just need to look at the other credit companies and see if I need to dispute those also (I just did this on equifax).

    Wish me luck!

  2. Thanx Steve, I’ll keep you posted on this.

    I called the Credit union before I found your blog and they basically said what you did, that reserve the right. So I asked straight up if they were going to come after me or not.

    She said she could not say and needed to look at the file, she did mention that she thought the money was used for home improvements and not purchase money, I told her that was not correct, this was a second to purchase the home (originally with Citi Mortgage), I simply moved it over to the Credit Union, but did not do anything else. She said she had to check

    I think that is the key, AZ law says that they cannot come after you if the money was purchase money for the house. So I am waiting to hear back.

    If they say that they are not coming after then I’ll follow your advice and ask them to zero it out. Do they have any reason not to?

    Thanx again, you are a kind sole to be helping folks like this.


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