Partial, late, or skipped payments are common examples of failing to pay as agreed. At first, your lender may give you some time to sort things out. But if the lateness continues, the lender will pursue one of the following options. The second mortgage lender cannot foreclose without paying off the first mortgage lender. Therefore, this course of action only makes sense when you have sizeable home equity. In that scenario, the second mortgage lender could sell the property and raise enough cash to pay off both home loans.
More commonly, the equity value is too low to support a foreclosure. In that case, your second mortgage holder would try to initiate a forbearance plan or make a settlement offer. Forbearance plan. This is a temporary, negotiated reduction in your monthly payments.
Anna Assad began writing professionally in and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.
Can Second Mortgages Foreclose on Property? By Anna Assad. Related Articles. What Is a Junior Deed of Trust? First and Second Mortgages A first mortgage is generally the mortgage that was initiated at the time of purchase or came before any other filed mortgage.
Foreclosure is nothing but a legal proceeding that is entirely initiated by the mortgage lender when the borrower fails to make payments according to the terms of the loan.
Usually, the mortgage payments are supposed to be made on time and each lender, irrespective of the order of the loans, can legally take actions to seize your real estate property to recuperate the money.
Read on to know whether or not the second mortgage lenders can force your property into a foreclosure. Generally, the first mortgage is the mortgage that was initiated during the time of buying your home and the one that was originated before any other mortgage loan.
On the other hand, a second mortgage loan is the second secured loan that was taken out by the homeowner on the real estate property while the older one still remains unpaid. Unlike the first mortgage loans, the second mortgages are typically those loans that are taken out against the equity of the borrower or the portion of the value of the property, the value that the homeowner holds free of any outstanding mortgage loan.
Second mortgage loans can take the form of home equity lines of credit or HELOCs and home equity loans. The total amount of the principal will be given to the borrower at the time of closing.
The second mortgage lender can still take the usual steps that are required to foreclose the property and he also requires informing the first mortgage lender about his intention to foreclose the property. 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 that 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 that 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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