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Have a reverse mortgage going in the works. Have enough to pay off the first mortgage,but will come up short on the second. The second was charge off five years ago to a collection agency which now has the title to the note. Have not heard from the collection agency in five years. Just learned who has the title yesterday from the title company doing the reverse. My question is do you think the collection agency will negotiate on the second. The second is for 65k and I would like to offer 25 to 30 percent, which would take care of the two liens.
You mentioned your junior mortgage was charged-off five years ago, and implied it was sold or assigned to a collection agency, which now holds the note. Before I offer an observation of how you can negotiate this debt, let us define a few terms.
Foreclosure
Foreclosure is the legal process through which a lender (most typically a mortgage lender) claims an asset from the consumer borrower. Foreclosure is almost always the result of default on payment. An important fact for mortgage payments is that lenders cannot take partial payment on the mortgage monthly payment.
There are two types of foreclosure: judicial and non-judicial foreclosure. A judicial foreclosure means the foreclosure is a court-based process. In states that use a judicial foreclosure process, the mortgage deed or mortgage lien does not have a forced power of sale clause, which means the lender must take the homeowner to court to take possession of the property.
Some states, most notably California, allow the lender to avoid the judicial foreclosure process. Instead, the lender notifies the borrower with a notice of default. Since the loan terms already specify that a sale process kicks off right away (without going through the court system), the lender can start the foreclosure process very quickly. This explanation is simplified and incomplete, but conveys the general processes behind judicial and non-judicial foreclosures.
Here, the junior mortgage was not used as the basis of a foreclosure. Instead, the bank charged-off the account and sold (sometimes called "assigned") the rights to the junior mortgage to a collection agent. The rights are commonly called a "collection account." Typically, collection accounts are sold for pennies on the dollar, although secured debt (such as a second mortgage) may be slightly more.
Charge-off
When a debtor stops paying on a debt, a creditor will attempt to contact the debtor on the telephone and via the mail. When the number of days since the most recent payment reaches 120-180 days, the account is no longer considered current and the creditor is required by generally accepted accounting principles to "write-off" or "charge-off" the debt (the two terms are synonymous). Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease.
Debt Collection & the Law
A creditor -- a debt collector that owns a collection account is a creditor -- has several legal means of collecting a debt. But before the creditor can start, the creditor must go to court to receive a judgment. A court (or in some states, a law firm for the plaintiff) is required to notify the debtor of the time and place of the hearing. This notice is called a summons to appear or a summons and complaint. In some jurisdictions, a process server will present the summons personally. In others the sheriff's deputy will pay a visit with the summons, and in others the notice will appear in the mail. Each jurisdiction has different civil procedure rules regarding proper service of notice.
Negotiating Debt
Consult with an attorney in your state about your rights and liabilities, and whether you qualify for bankruptcy. If you do, take careful notes of what the attorney explains regarding what will happen to the collection account if you file for Chapter 7 or Chapter 13.
Call the collection agent that owns the rights to your collection account. Explain what the attorney told you should you decide to file for Chapter 7 or Chapter 13. Be non-emotional and business-like, and tell them their behavior will dictate your decision: a negotiated settlement or bankruptcy. If the collection agent is stupid or evil, they will tell you to go ahead and file for bankruptcy.
However, if the collection agent is smart and believes that you are willing to file bankruptcy, they will relent and negotiate a settlement. I realize bankruptcy is frightening and pushes emotional buttons in many consumers. You need need to work though that and realize this is a business decision for the collection agent (it is not personal to the people at that company at all), and a simple financial decision for you. In my observations, collection agents work on a weekly and monthly basis, and negotiations may be more fruitful on Fridays instead of Mondays, and at the end of the month instead of the beginning.