But you might be able to reduce the amount of property tax that you have to pay by challenging your home's assessed value or taking advantage of an abatement, deferral, or repayment program.
One step to reduce the property taxes you must pay is to challenge your home's assessed value. The property taxes are primarily based on your home’s taxable value, which could be based on the fair market value, full value, actual value, or something similar.
All states have specific procedures for challenging—or “appealing”—a property's assessed value. Typically, you’ll need to dispute the value shortly after you receive the bill. To prevail in your challenge, you must show that the estimated market value placed on your property is either inaccurate or unfair.
Also, some states require that you pay the bill before appealing. You’ll then typically get a refund if you’re successful in your challenge.
Follow the procedures carefully. Otherwise, you might lose the appeal. Check the tax assessor’s website or review your property tax bill to learn about the specific process and what sort of documents and evidence you’ll need to make your challenge to the value the assessor placed on your home.
Each state has property tax abatement (reduction) or exemption programs that allow specific homeowners to reduce the amount of property tax they must pay based on age, disability, income, or personal status. Older homeowners and veterans often are entitled to reduced property taxes.
Ordinarily, you’ll have to apply for the abatement and provide proof of eligibility.
In some states, abatement isn’t possible if you’re already delinquent in your tax payments. But you might qualify for a deferral (where you can postpone paying the taxes if you meet eligibility requirements) or a repayment plan.
Also, many states permit the taxing authority to compromise on the amount of due taxes or waive penalties and interest.
When you don’t pay your property taxes, the taxing authority could sell your home or its lien on the property to satisfy your debt.
Or, your mortgage lender might pay the taxes and then bill you. If you fail to reimburse the mortgage lender, it might foreclose your home. If you're facing a potential foreclosure, consider contacting an attorney to find out your options.
]]>If you have a second mortgage on your home and fall behind in payments, the second mortgage lender might or might not foreclose, usually depending on the home's value. Here's why.
A senior lien, such as a first mortgage, takes priority over a junior lien, like a second mortgage. "Priority" determines which lender gets paid before others after a foreclosure sale.
Generally, priority is determined by the date the mortgage or other lien is recorded in the county land records. However, some liens, like property tax liens, have automatic superiority over essentially all prior liens.
First mortgages are, as the name suggests, typically recorded first and are in a first lien position. Second mortgages are usually recorded next and are, therefore, in the second position. Judgment liens, if any, are often junior to a first mortgage and possibly a second mortgage, as well as perhaps other judgment liens that other creditors previously filed.
A lender can choose to foreclose when a borrower becomes delinquent on a mortgage loan, whether the mortgage is a first or a second mortgage. If you default on your first mortgage, the lender will likely begin foreclosure proceedings.
If, on the other hand, you default on a second mortgage, whether that lender will initiate a foreclosure depends mainly on your home's current value.
If your home's value exceeds the amount you owe on your first mortgage, your second mortgage is at least partially secured. So, the proceeds from a foreclosure sale will pay off the second mortgage in part or in full.
In this situation, the second mortgage holder will probably initiate a foreclosure after you fall behind in payments on that loan because it will recover part or all of the money it loaned to you once the property is sold at a foreclosure sale. The more money a second mortgage holder will get after a foreclosure sale, the greater the likelihood that the second mortgage holder will foreclose.
If your home is underwater (your home's value is less than the amount you owe on your first mortgage), your second mortgage is effectively unsecured. So, if the second mortgage holder foreclosed, the foreclosure sale proceeds wouldn't be sufficient to pay anything to that lender.
In most cases, if you're underwater and fall behind on payments for your second mortgage, the second mortgage holder probably won't start a foreclosure. That's because all the money from the foreclosure sale would go to the senior lender. But the second mortgage lender could, if allowed by state law, sue you personally for repayment of the loan.
Again, even if the second mortgage holder decides not to foreclose, that lender can potentially sue you to recover the money it loaned you if state law permits it. This type of suit commonly happens after the first mortgage holder forecloses, though it could happen sooner.
In a first mortgage foreclosure, any junior liens, including second mortgages, HELOCs, and others, are also foreclosed. And those junior lienholders lose their security interest in the real estate. This kind of lienholder is sometimes called a “sold-out junior lienholder.”
Sold-out junior lienholders sometimes file suits. When a junior mortgage holder has been sold out in a first mortgage foreclosure, that junior mortgage holder usually can, depending on state law, sue you personally on the promissory note to recover the money it loaned you.
How sold-out junior lienholders collect from you. If a junior lienholder wins a lawsuit and gets a money judgment against you, that lender may generally collect this amount using regular collection methods, like garnishing your wages or levying your bank account.
Filing for bankruptcy might provide some relief. Filing for bankruptcy can potentially reduce or eliminate this type of debt.
If you're struggling to make the monthly payments for your second mortgage or are already behind, consider the following options.
Which option is best for you will depend on your specific financial situation and goals.
Several options are available if you want to get rid of a second mortgage. You could pay it off in full. The lender will then release the mortgage (the lien) from your home.
Or you could try to negotiate a reduced lump-sum payoff. You would have to get the lender to agree to let you pay a portion of the outstanding balance. The lender would then forgive the remaining balance.
Again, you could refinance your first and second mortgage loans into a single loan if you qualify.
If you can't work out a loan modification or another alternative for your second mortgage and the lender decides to start a foreclosure, you have rights during the process. Federal and state laws regulate foreclosure, and lenders must strictly comply with those laws.
Your first step if you're having trouble repaying your second mortgage should be to call your loan servicer. The servicer can tell you what options are available. Be sure to understand the differences between the various alternatives the servicer might offer, like a repayment plan or loan modification.
If you're facing a foreclosure and have multiple liens on your property, consider talking to a foreclosure attorney to find out what will happen to those liens and learn about various options in your particular circumstances. Also, make an appointment to talk to a (free) HUD-approved housing counselor.
Talk to a bankruptcy lawyer if you're considering filing for bankruptcy.
]]>An investment property is a property you buy to generate income like to rent to tenants or flip and sell for a profit. However, a second home is a single-family dwelling you plan to live in for some of the year or visit regularly.
The definition of an "investment property" is a property that's:
Examples of investment properties include:
A “second home” is a residence you intend to occupy for part of the year in addition to a primary residence.
To get a mortgage loan to buy a second home, the property typically must be located in a resort or vacation area, like the mountains or near the ocean, or a certain distance (typically at least 50 miles) from the borrower's primary residence. Also, the borrower must meet credit and other underwriting requirements,
Usually, a second home is used as a vacation home. But it could also be a property you regularly visit, such as a condo in a city where you often conduct business or a pied-à-terre.
Investment properties and second homes are similar because they are both types of property you don't use as a primary residence. However, with both, you're responsible for property maintenance, repairs, property taxes, insurance, and utility bills.
Either type of property might appreciate in value over time, and owners of both investment properties and second homes might qualify for certain tax deductions or advantages (see below).
Mortgage loans are available for qualified borrowers to buy an investment property or second home. But the terms and interest rates vary from lender to lender and in different situations, like if you have bad—or good—credit.
Basically, if you buy real estate that you'll use just to make a profit rather than as a personal residence for you and your family to visit at times, that property is considered an investment property. Second homes are used for personal enjoyment.
First, consider what you want to do with the property: make money or have fun with it. Secondly, if you'll be taking out a loan to buy the property, consider the loan requirements and terms and how they'll affect your financial situation. Investment property loans usually have higher interest rates and require a larger down payment, typically around 20%, than properties people use as second homes. On the other hand, second home loans regularly have a lower interest rate than investment property loans.
Also, be sure to pick the right location, considering the rental market (if applicable) or whether the property is in a desirable vacation spot. Finally, take a close look at the associated costs of buying and maintaining a property, including mortgage payments, property taxes, homeowners' insurance, and potential income. That way, you can determine if buying a property and which type is a good idea.
A second home loan might be appropriate if you want to use the property yourself, but perhaps rent it out sometimes or keep it for your exclusive use. An investment property loan is probably appropriate if you want to rent the property out full-time.
If you're considering taking out a loan to purchase an investment property or a second home, understand the differences between these terms and make your intentions clear to the lender when you apply for the loan. That way, you'll ensure you get the correct type of loan for the property you intend to buy.
Don't be tempted to buy a property as a second home when you intend to use it as an investment property to avoid a higher interest rate and stricter loan qualification requirements. This tactic is considered mortgage fraud.
When it comes to financing, it’s more straightforward and less expensive to get a mortgage for a primary residence. After all, in tough financial times, people prioritize paying for their main home.
So, lending requirements are stricter for second home and investment property loans than principal residences. Both second home and investment property mortgages require better credit scores and a larger down payment than a primary residence loan. You might have to show that you have enough savings, called "reserves," to make the payments for up to six months.
You’ll probably also need sufficient income to cover two mortgage payments (your primary residence and the second home or investment property). Generally, you can't use the rental income you expect to receive from an investment property to qualify unless your tax returns show you have property management experience, subject to some exceptions. Talk to a mortgage lender to learn more.
Getting a second home mortgage is generally cheaper and easier than a loan for an investment property. Investment properties are typically the most difficult to finance.
Eventually, you might want to convert your second home into an investment property. Read your mortgage documents carefully to determine if the contract restricts whether the second home can be rented or how long the home must be used as a second home.
A second home loan might include a Fannie Mae/Freddie Mac "Second Home Rider" with the mortgage. This rider often says that:
So, this rider makes it seem like you can't rent out a second home. But Fannie Mae and Freddie Mac rewrote their guidelines to clarify that if you have a Fannie Mae or Freddie Mac mortgage on a second home, that house can be used as a rental property, subject to some limitations.
Here are the rules:
Renting a second home was always allowed for Fannie Mae and Freddie Mac policies under certain circumstances. But because of the complex language in the rider, both borrowers and lenders often didn't understand the rules.
If you have a second home rider like the one discussed above, you can't use a property management company to help you manage renting your second home. So, if you find yourself in this situation, you must handle all rental tasks associated with your second home (if you decide to rent it out), such as finding renters, collecting payment, and maintaining the property. You can hire someone to do particular tasks like yard work, but you must manage the rental yourself. You also can't enter into a timeshare agreement.
Managing any property, even just a second home you use exclusively yourself, but especially investment property, can be time-consuming. You might have to deal with difficult neighbors, numerous repairs, or an unexpected vacancy, all of which can impact your profitability and enjoyment. If allowed, you might consider hiring a management company to help you.
Purchasing an investment property or a second home come with certain risks. Again, they usually require a substantial down payment, which will deplete your financial resources. In addition, maintaining another property can put a strain on your finances. You'll have to pay mortgage payments, property taxes, insurance, and maintenance costs. If you fail to make the payments, you could face a foreclosure as you would with your primary residence if you defaulted on the mortgage.
Also, the value of the property you buy might to up or down, depending on the real estate market. You might have to take a loss in the property's value or accept less in rental income.
Investment properties and second homes have different tax benefits. For example, expenses usually aren’t deductible for personal residences, like second homes. Associated costs with these properties are nondeductible personal expenses. But if you have an investment property, say a rental, you can write off expenses, like maintenance costs.
For tax purposes, if you rent out your property, including a second home, for 14 days or fewer each year, the income isn’t usually taxable at the federal level. But if you rent out your property for more than 14 days per year, you’ll have to pay federal income tax on your net rental income. (However, the terms of your mortgage contract might prohibit renting out a second home.)
Mortgage interest is deductible for a second home in some cases. For an investment property, it can be deducted as a business expense to lower taxable income.
Consult with a tax professional for comprehensive advice about taxation issues related to a second home or an investment property.
To learn more about purchasing an investment property or second home, see Nolo’s articles:
Talk to a real estate lawyer for more information about buying an investment property or a second home and how to finance such a purchase. If you have questions about the taxation of these properties, talk to a tax lawyer.
]]>I lost my home to foreclosure about a year ago. I stopped making payments on the second mortgage around the same time, and I just got a notice that the second loan was “charged off.” What does this mean? Is the debt forgiven? What should I do, if anything?
Your second-mortgage debt hasn't been canceled or forgiven. A “charge off” is an accounting term that means the creditor no longer considers the money you owe as a source of profit but instead counts it as a loss.
A charged-off loan, unlike forgiven debt, is still considered an obligation you must pay.
When the first-mortgage lender foreclosed on your home, the second mortgage was also foreclosed, and that lender lost its security interest in the real estate. But while the second-mortgage lien was eliminated, the debt associated with the second mortgage wasn't.
Instead, the loan became unsecured debt. Then, after you stopped making payments on your second mortgage, your second-mortgage lender eventually determined that the debt was uncollectible and decided to charge it off. A charge off usually happens between 180 and 240 days from the date of your last payment.
A charge off means that the lender is writing the debt off their books, but it doesn't mean the lender forfeits the right to collect it. Even though the lender did a charge off, the debt remains legally valid.
After the charge off, the creditor will typically send or sell the account to a collection agency. That agency will probably make repeated calls and send letters to you in an attempt to collect the debt.
You have a few different options after a lender charges off a second mortgage and sends it to collections. Your options include the following.
You can make payments on the debt or pay it off in full. Otherwise, the collection agency might sue you for a money judgment.
Ignoring the debt and letting a suit happen generally isn't recommended. If the collection agency wins the lawsuit and gets a money judgment against you, it may typically collect this amount using standard collection methods, like garnishing your wages or levying your bank account.
Of course, if you have nothing the collection agency can get from you, you're "judgment proof." If this financial situation will last for a long time, then it might make sense to do nothing. However, being judgment proof is, in some cases, only a temporary condition. Your financial situation could improve.
So, consider talking to a lawyer before you make this decision. You might have a defense to the suit, like the statute of limitations has run out, or the creditor doesn't have the legal right to sue (called "standing").
Filing for bankruptcy is also an option because bankruptcy can reduce or eliminate this type of debt.
If you can’t afford the required monthly payments or come up with enough to pay off the debt, you might be able to negotiate a settlement for an amount less (often much less) than what you actually owe. Some creditors will accept as little as 10%-20% of the remaining balance to settle the debt. Though, you might be liable to pay taxes on any forgiven amount.
If you want to settle a debt resulting from a charged-off second mortgage, consider talking to a debt settlement attorney.
]]>In most cases, a judgment lien remains on the property's title until you sell or refinance your house. When you sell or refinance, the lien is paid off. Once the judgment lien is paid, a release or satisfaction of judgment is recorded in the land records, which clears the title to the property.
But what happens to a judgment lien if you don't make your mortgage payments and go through a foreclosure? If you lose your home to a lender's foreclosure, the judgment lien is typically wiped out, assuming that the lien doesn't have priority.
Whether the judgment lienholder will get paid anything after a foreclosure sale depends on whether any money is left over after senior mortgage holders and priority liens are paid off.
A "judgment lien" is usually created when a copy of the judgment is recorded in the county land records. The judgment will typically be filed in the land records of the county where:
So, the judgment lien attaches to any real estate you currently own, and it will also attach to any real estate that you later acquire.
Generally, the priority of a judgment lien is determined by its recording date. A basic legal principle states, "first in time, first in right." The priority of liens determines who gets paid first after a foreclosure.
However, sometimes the recording date doesn't matter. For example, judgment liens are always junior to property tax liens.
Judgment liens are also usually junior to a first mortgage and possibly a second mortgage, as well as perhaps other judgment liens that other creditors previously filed.
In a mortgage foreclosure, the foreclosure process eliminates any judgment liens that were recorded after the mortgage.
Any surplus funds after the foreclosing lender’s debt is paid get distributed to other creditors that hold junior liens, like second mortgages and judgment lienholders.
A judgment lienholder can foreclose on your home to get paid. But judgment lienholders rarely foreclose because of the time and money needed to complete the process.
Often, they wouldn't get anything from foreclosing because senior mortgages or other liens have priority and get paid first.
If you're worried about a judgment lien on your home, consider talking to a real estate or foreclosure attorney to learn about your rights and options, including ways to potentially settle the debt or fight the lien if it's invalid. A debt settlement lawyer might also be able to help you.
For instance, suppose you took out a second mortgage, along with a first mortgage, to cover the purchase price of your home. Then, a credit card company sued you and got a judgment lien. You then fell behind in your mortgage payments, and the lender started a foreclosure.
What happens to your second mortgage and the judgment lien in the foreclosure? Read on to find out.
Here are the basics on mortgages, second mortgages, and judgment liens.
When you take out a loan to buy a home, you're usually required to sign two documents: a promissory note and a mortgage (or deed of trust).
Homeowners sometimes take out a second mortgage when purchasing their property or, in some situations, decide to take out a home equity loan or line of credit.
Second-mortgage lenders (and third-mortgage lenders), just like first-mortgage lenders, will often require that you sign a promissory note and a contract that pledges the property as collateral for the loan.
You might also have other liens on your property, like a judgment lien. If you're sued in court for a sum of money and lose the case, the prevailing party will be granted a judgment. That party may then file a judgment lien in the land records, which is a lien that attaches to your real estate.
Generally, the priority of a lien is determined by its recording date. But some liens, like property tax liens, have automatic superiority over essentially all prior liens.
First mortgages are, as the name suggests, typically recorded first and are in the first lien position. Second mortgages are often recorded next and are usually in the second position.
Judgment liens are frequently junior to a first mortgage and possibly a second mortgage, as well as perhaps other judgment liens previously filed by other creditors.
The priority of liens establishes who gets paid first following a foreclosure sale. “Senior” liens are paid before “junior” liens (those with lower priority).
After the first-mortgage lender forecloses, any surplus funds from the foreclosure sale after the foreclosing lender’s debt has been paid off will be distributed to creditors holding junior liens, like a second-mortgage lender or judgment creditor (the person who sued you and won the judgment).
When a first-mortgage lender forecloses, people often mistakenly think that the second mortgage and any judgment liens have also been satisfied—even if the foreclosure sale didn't bring in enough funds to pay off those debts. They're then surprised when the second-mortgage holder or judgment creditor seeks to have the outstanding balance on their debt paid.
Following a first-mortgage foreclosure, all junior liens (including a second mortgage and any junior judgment liens) are extinguished, and the liens are removed from the property's title. But the second-mortgage debt and creditor’s judgment remain, even though they're no longer attached to the foreclosed property. While the security for the debt has been eliminated, the obligations remain in place.
If the second-mortgage lender doesn't receive enough money from the first-mortgage lender’s foreclosure to satisfy the debt and assuming you've stopped making the payments on that loan, it might sue you in court for the difference (as long as state law doesn't prohibit this action).
Remember the promissory note you signed when you took out the second mortgage? That was your promise to pay.
So, the second-mortgage lender can sue you based on that promissory note. Because second-mortgage lenders frequently receive little or nothing from a foreclosure sale, it's not surprising that they often take this route to attempt to get paid.
A judgment creditor will also lose its security interest in the property following a first-mortgage lender's foreclosure. However, while the judgment creditor's lien might have been eliminated from that particular piece of real estate, it will still attach to any other real estate you own now or in the future.
Plus, the judgment creditor can try to collect the debt in other ways, like by freezing your bank accounts or garnishing your wages.
If you're facing a foreclosure and have multiple liens on your property, consider talking to a foreclosure attorney to find out what will happen to those liens and to learn about various options in your particular circumstances.
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