Second Mortgage Foreclosure

A second mortgage foreclosure is something that a vast array of homeowners are currently having to deal with, and with the current economy and real estate markets reeling in turmoil these second mortgage foreclosures have become an increasing problem throughout the country. A foreclosure on a second mortgage is not that dissimilar than a foreclosure on a first mortgage except for the fact that the second mortgage will always be paid off after the first mortgage.

This has been the cause of much confusion for a good portion of citizens who have had difficulty making their mortgage payments on time. There are however a few things any homeowner should know before they allow their second mortgage to fall into foreclosure.

A second mortgage on a piece of property is in essence a lien that is subordinate to another lien with a higher priority. Real estate property can have a number of liens placed against the same property, and typically these liens are a result of mortgages that were established when the property owner took out financing to buy the property. The first mortgage normally has first priority, which means that it gets paid off before any other loans or liens that may be placed against the property.

The second mortgage usually comes about as a result of a home equity loan or home equity line of credit, and will most of the time hold a second position against the property. This means that it will get paid off after the first mortgage is paid off if the property ever goes into default and perhaps after any taxes or other penalties.

There are essentially two situations that most people go through when they begin to default on their home and they have a second mortgage. They either go into default on the second mortgage while still remaining current on the first mortgage, or they go into default on the first mortgage and they may or may not keep paying the second mortgage.

If you cannot pay your second mortgage and allow it to go into default while still paying your first mortgage then you will have to deal with the lender or lienholder of that note. Most of the time after a period of negotiation between the property owner and the holder of the second mortgage, a settlement is reached to clear the property of the second mortgage. The holder of the second mortgage has the right to sue or attempt to foreclose but this rarely ever happens.

If you have a second mortgage and you are facing foreclosure as a result of not paying your first mortgage then you are not unlike many homeowners throughout this great country. Once the property goes into foreclosure the taxes and the first mortgage will always be paid off first. If money is still owed on the second mortgage then it will have to come from the sale of the property after the foreclosure.

Many times the sale of the property after the foreclosure doesn’t yield enough capital to pay off the second mortgage and during these sorts of cases the holder of the second mortgage has little recourse. The second mortgage holder can only sue after the foreclosure for what is called a deficiency judgment, and this will more than likely not happen. The laws in regard to deficiency judgments vary greatly on state by state basis so it is vital that you check up on your own state’s rules and regulations in regard to this issue before thinking you are free and clear of such obligations if in fact you ever go into foreclosure.