Everett, WA asked in Real Estate Law for Washington

Q: "Charged-Off" real estate debt--What are my options? In 2013, my home was foreclosed with a 1st & 2nd mortgage.

The home was sold for about $30k above the amount of the first mortgage. $6k of that was applied to the second mortgage. I've been renting since then, trying desperately to repair the damage to my credit. I recently called a mortgage broker to see if I am in a position to become a homeowner again. She found that the 2nd mortgage is still on my credit report showing as a “charge off” with a $70k balance owed. Not understanding what a charge-off meant, I attempted to dispute it. The lender sent me a letter stating that it would not be removed, as it is not an error, and it has been “transferred to recovery.” To date, I have not received a bill or collection. I reviewed the RCW, which says the statute of limitations is 6 years from the date of the last payment, for real estate. However, now that the debt is unsecured, then the statute be 10 years (2023). I don't want to obtain a mortgage and have them place a lien on a new residence, ending up right back where I was in 2013.

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1 Lawyer Answer
Mark David Nusz
Mark David Nusz
  • Bellingham, WA
  • Licensed in Washington

A: Many people in you situation in 2013 would have filed for bankruptcy so that the 2nd mortgage would have been completely removed / discharged. Then the creditor would not have any recourse to you personally for the deficiency.

The charge off only means that the creditor has "written-off" the amount owed as "bad debt," likely so they could get a tax deduction for the loss. This does not mean, however, that you still don't owe the money. The right to collect the past due amount still has value. It is common for the creditor to either assign or sell the contract / paper to a collection agency and then that company will start trying to collect.

There is a statute of limitation, but there are ways that the time clock can be "put on hold." It is common for it to take many more than 6 years for the debt to completely fall away solely because of aging.

The impact to you, at this point, is that this is hurting your credit and making it much harder to get approved for a new home loan. However, if you are able to get a new home and a mortgage on it - the old 2nd mortgage will not automatically attach to your new house. The creditor (or their agent) would have to file a collection lawsuit and get a judgment against you. Then, the judgment would attach to any real property that you owned.

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