What is a Second Mortgage?
When a homeowner takes out a second loan using their house as collateral, this can be known as a credit line, equity loan, or home equity line of credit (HELOC). These loans generally utilize the equity you have in your home. However, these loans are considered “Mortgages” and they are liens on your property.
Can my Second Mortgage Lender Foreclose on my Property?
Your second mortgage lender has as much right to foreclose on the property if you fall behind on payments as your original mortgage lender does. However, a second mortgage lender must pay off the first mortgage if they foreclose, so they will normally only proceed with foreclosure if your property is worth more than you owe on your first mortgage.
The more equity you have in your home, the more secure your second mortgage is, and the more likely your second mortgage lender is to pursue foreclosure. If your second mortgage holder thinks that they can get paid in full at a sheriff sale, they may be very aggressive in their collection efforts.
If your home is underwater, meaning you owe more than it is worth, your second lender is unlikely to pursue foreclosure because they will not get enough back from the sale to satisfy the debt. However, in those cases, they may file a lawsuit to collect on the Note instead of foreclosing.
What Happens to my Second Mortgage if my Original Mortgage Lender Forecloses?
Many homeowners believe that If your original mortgage lender forecloses on your property and your home is sold at a sheriff sale, your second mortgage is satisfied. This is not always the case. Even though the liens on the property title are cleared after foreclosure, you still owe the remaining balance of the second mortgage to your lender.
When your property is sold at a sheriff sale, mortgages and other liens are paid off according to priority. Lien priority is usually determined by which one was recorded first. So, if an investor buys the home at sheriff sale, the funds will first go to the foreclosing lender. If it is enough to pay that loan in full, the Second Mortgage holder has the right to apply to the Court to obtain these Surplus Funds.
My Second Mortgage Lender is Suing Me. What Should I Do?
If you are being foreclosed or sued on a second mortgage, contact us today. At the law office of Ira J. Metrick, we will review your case and help you understand your rights and options for your situation.