What Happens When a Second Mortgage Forecloses?
We know how devastating it can be when a second mortgage forecloses. Dealing with a single foreclosure is already stressful enough, and now you’ve got a second lender to worry about on top of it all. The possibility of any foreclosure can leave you stressed about your financial situation.
The trusted mortgage brokers in Tucson have the answers for you when you want to know what happens when a second mortgage forecloses. In this blog post, we will discuss what happens during a second mortgage foreclosure, what happens with your mortgage lender, and details about the foreclosure process.
It’s not uncommon for homeowners to take out a second mortgage alongside the initial mortgage to help cover the purchase of their home. People also take out second mortgages to cover other payment situations such as home improvements, college tuition payments, and debt consolidation.
What Happens to Second Mortgages in a Foreclosure?
When you have more than one mortgage out on a property, this means that your property could also be subject to a judgment lien.
If at any point you fail to make a payment to a lender, then the lender has the right to start a foreclosure. In a foreclosure, lien priority takes place. This means your first lender for your first mortgage gets priority in payment (called a “senior lien”).
A “junior lien” would be your second mortgage lender and any outstanding judgment liens.
The Foreclosure Process
If your first mortgage lender forecloses, any funds from the foreclosure after the lender’s funds have been paid off will go to the junior liens. A lot of people believe that when a first mortgage foreclosure happens, the second mortgage has already been taken care of, but this is not always the case. The second mortgage lender’s debt obligations remain.
This means the second mortgage holder has the right to sue you based on the promissory note you initially signed if they don’t receive enough money from the first lender’s foreclosure. This isn’t an uncommon occurrence because most second-mortgage lenders receive very little from a foreclosure sale.
To answer the initial question, what happens when a second mortgage forecloses? The debt doesn’t go away. Since you signed the promissory note at the beginning of the deal, you must pay them what you owe. If they don’t get enough money from the initial foreclosure and you don’t pay them back, they have the right and opportunity to sue.
The best way you can avoid all of this is by being properly prepared. Stay on top of your mortgage payments, however many you have, and pay what you owe. If you don’t, you run the risk of not only being foreclosed from your home property but also being sued in addition.
Contact a Mortgage Lender in Tucson, AZ
For more information about finances with mortgage debt or loans, what happens when a second mortgage forecloses, foreclosure sales, or what happens to your mortgage if the housing market crashes, contact us today at Priority Lending. Call us at 520-531-1119 or contact us online to reach a loan officer.