How to Charge Off a Second Lien

When a second lien mortgage is at the point where it is apparent the loan will not be paid, the lender may choose to charge off the lien. The decision to charge off the loan is the difficult part. Once that's done, the process is fairly simple. The procedure varies based on the lender's system and accounting practices, but it can follow standard steps to charge off the lien.

Instructions

1. Obtain the proper account number for the second lien. You do not want to accidentally charge off the first by mistake. Type the number into your institution's loan system and verify the balance that is being charged off.

2. Waive any late fees or miscellaneous collection charges (e.g. legal fees, forced-place insurance fees, reappraisal fees) as these cannot be charged off.

3. Apply any money the borrower has paid to the principal balance on the loan.

4. Select the option to charge off the loan on the loan system. Inform the accounting department so it can make the appropriate entries.

5. Fill out a 1099-C (cancellation of debt) form and submit to the Internal Revenue Service.

References

• Debt Help: What is a Charge off?
• Bills: Charge off Credit Union Loan