Reader Question: Can Unpaid Credit Card Debt Be Added to My Mortgage?

"Marcia" from Texas contacted me because she was considering entering a debt settlement program (with a company I'd never heard of) to negotiate payment on the substantial debt she owed. But the representative warned her that since one of her larger credit card balances was with the same company that held her mortgage, she should leave it out of the program. Otherwise, the creditor could add her unpaid credit card debt to her mortgage loan. "Is that true?" she wondered.

It didn't sound right to me, but I checked with the experts to confirm my suspicions.

Consumer Law Attorney and author John Ventura said:

The only way I know that you could add unpaid credit card debt to a mortgage is when a person signs a contract containing a cross collateralization clause. That is a clause that says that if you have a loan that is collateralized with something, normally a car, you agree that any additional money you borrow from the company is also collateralized. I have not seen this much.

This consumer would have to read the contract she signed and see if there is any language in the contract that cross collateralizes any other loans with the collateral from a separate loan. I do not think this works in Texas on a homesteaded property anyway, because Texas law says that you can only take liens on homesteads in limited circumstances such as a purchase money loan, remodeling loan, or with tax liens. Texas does not let unsecured creditors obtain liens on homesteads after a default. You cannot get a lien on a homestead in Texas, even if the creditor gets a judgment. I would recommend this consumer talk with a real estate attorney to confirm this.

Debt negotiation expert Charles Phelan says:

I've never seen this happen in ten years of doing settlements. I don't see how they could just add an unsecured debt on top of a collateralized mortgage without rewriting the home loan. Also, I've had many clients successfully settle unsecured debts when the same creditor held a mortgage. I would advise the client to include the account in the settlement program, with the aim of settling before charge-off. It's extremely unlikely that the mortgage would ever even come up in the negotiations.

The bottom line is, I don't think this consumer needs to worry about unpaid credit card debt getting tacked onto her mortgage. But I do think she needs to find a knowledgeable debt settlement firm! I would recommend she read my advice about debt settlement, and then get a free consultation from a reputable firm.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.