Your One Stop Resource for Saving Money.
Can a Second Mortgage Holder Foreclose if the First Mortgage is Current? - The Bills.com Blog
Bills.com Blog > Mortgage Questions > Can a Second Mortgage Holder Foreclose if the First Mortgage is Current?
Can a Second Mortgage Holder Foreclose if the First Mortgage is Current?
Wednesday, Sep 16, 2009
Question: Can the lender of a second mortgage foreclose on my home if the first mortgage is current?
Answer: If you become delinquent on your second mortgage, the lender can foreclose on your house and property.The Foreclosure Process
The foreclosure process varies from state to state, but usually takes from two to 18 months. Generally speaking, if mortgage payments are not received within 150 days, the bank can proceed with the foreclosure process.
If the second mortgage holder forecloses, it is not automatic that the first mortgage holder will foreclose, but to protect their rights it would be foolish for the first mortgage holder not to foreclose as well. Alternatively, the first and second mortgage holder will negotiate a deal amongst themselves where one buys the interest in the property from the other so that only one mortgage holder will foreclose.
The house will be sold, the first mortgage holder will be repaid first, followed by the second mortgage holder if any funds remain.
Typically, in these situations, the sale price is less than the value of the mortgages held against it. If that is the case, then in some states the borrower could still owe an unsecured balance, which is called a "deficiency balance." The good news is that a deficiency balance (if it exists and if your lenders pursue it) is an unsecured debt (like credit card debt) that can be enrolled into a debt settlement program.
In some states (such as California) and in some circumstances, the second mortgage may be what is called a non-recourse loan. (I have written about the California recourse loans issue before.) A non-recourse loan means that the lender has no recourse to collect any deficiency balance against the borrower. Its only recourse is the security on the property itself. You will need to review your loan documents and state laws to determine if your second mortgage is a non-recourse loan. Contact an attorney in your state who is experienced in property law to determine for
certain if your mortgages are recourse or non-recourse.
Foreclosure Analysis
Lenders do not like to foreclose on mortgages. Foreclosures cost more than they earn, so lenders foreclose only as a way of limiting losses on a defaulted loan. If homeowners get behind on payments, lenders will most likely work with them to bring the loan current. To do so, however, the owner must stay in communication with the lender and be honest about the financial situation. The lender's willingness to help with current problems will depend heavily on past payment records.
If the owner has made consistently timely payments and had no serious defaults, the lender will be more receptive than if the person has a record of unexplained late payments. For those falling behind in payments or who know they are likely to do so in the immediate future, they should contact the lender right away about meeting to discuss alternative payment arrangements.
Loan Workout Plan
An agreement between borrower and lender to prevent the loss of a home is called a loan workout plan. It will have specific deadlines that must be met to avoid foreclosure, so it must be based on what the borrower really can do to get the loan up to date again.
The nature of the plan will depend on the seriousness of the default, prospects for obtaining funds to cure the default, whether the financial problems are short-term or long-term and the current value of the property. If the default is caused by a temporary condition likely to end within 60 days,
Foreclosure Analysis
Lenders do not like to foreclose on mortgages. Foreclosures cost more than they earn, so lenders foreclose only as a way of limiting losses on a defaulted loan. If homeowners get behind on payments, lenders will most likely work with them to bring the loan current. To do so, however, the owner must stay in communication with the lender and be honest about the financial situation. The lender's willingness to help with current problems will depend heavily on past payment records.
If the owner has made consistently timely payments and had no serious defaults, the lender will be more receptive than if the person has a record of unexplained late payments. For those falling behind in payments or who know they are likely to do so in the immediate future, they should contact the lender right away about meeting to discuss alternative payment arrangements.
Loan Workout Plan
An agreement between borrower and lender to prevent the loss of a home is called a loan workout plan. It will have specific deadlines that must be met to avoid foreclosure, so it must be based on what the borrower really can do to get the loan up to date again.
The nature of the plan will depend on the seriousness of the default, prospects for obtaining funds to cure the default, whether the financial problems are short-term or long-term and the current value of the property. If the default is caused by a temporary condition likely to end within 60 days,
the lender may consider granting "temporary indulgence."
Those who have suffered a temporary loss of income but can demonstrate that the income has returned to its previous level may be able to structure a "repayment plan". This plan requires normal mortgage payments to be made as scheduled along with an additional amount that will end the delinquency in no more than 12 to 24 months. In some cases, the additional amount may be a lump sum due at a specific date in the future. Repayment plans are probably the most frequently used type of agreement.
Forbearance Plan
In some cases, it may be impossible to make any payments at all for some time. For those who have a good record with the lender, a "forbearance plan" will allow them to suspend payments or make reduced payments for a specified length of time. In most cases the length of the plan will not exceed 18 months and will stipulate commencement of foreclosure action if the borrower defaults on the agreement.
Conclusion
Foreclosure is a serious situation that has negative repercussions on your credit score. Avoid foreclosure if you can. Consider a a deed in lieu of foreclosure or a short sale if you cannot create a loan workout or forbearance plan with the lenders.
Bills.com is here to help. We also offer helpful guides, foreclosure FAQs, glossary terms, and other helpful tools to help you keep your home and avoid a bank repossession. You can find more information on the Bills.com foreclosure page.
I hope the information provided helps you Find. Learn. Save
Best,
Bill
www.bills.com/blog
Those who have suffered a temporary loss of income but can demonstrate that the income has returned to its previous level may be able to structure a "repayment plan". This plan requires normal mortgage payments to be made as scheduled along with an additional amount that will end the delinquency in no more than 12 to 24 months. In some cases, the additional amount may be a lump sum due at a specific date in the future. Repayment plans are probably the most frequently used type of agreement.
Forbearance Plan
In some cases, it may be impossible to make any payments at all for some time. For those who have a good record with the lender, a "forbearance plan" will allow them to suspend payments or make reduced payments for a specified length of time. In most cases the length of the plan will not exceed 18 months and will stipulate commencement of foreclosure action if the borrower defaults on the agreement.
Conclusion
Foreclosure is a serious situation that has negative repercussions on your credit score. Avoid foreclosure if you can. Consider a a deed in lieu of foreclosure or a short sale if you cannot create a loan workout or forbearance plan with the lenders.
Bills.com is here to help. We also offer helpful guides, foreclosure FAQs, glossary terms, and other helpful tools to help you keep your home and avoid a bank repossession. You can find more information on the Bills.com foreclosure page.
I hope the information provided helps you Find. Learn. Save
Best,
Bill
www.bills.com/blog
Also, make sure to get a free financial health check-up with Bills IQ!
User Comments
Submit questions/comments about this post:
Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!
Information provided by Bills.com is for general informational purposes only and is not be
construed as legal, financial, bankruptcy, tax or other professional advice. Should you
require more detailed information or specific professional advice tailored to your situation you
should consult an attorney, financial planner or tax advisor.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
While we believe all information provided by Bills.com to be accurate as of the date of its posting, we cannot ensure its accuracy. Use of this site and any information contained on or provided through this site is provided without any representations, warranties or guarantees. Bills.com is not responsible or liable for any decisions or actions anyone may take based on the information provided. Please see Terms of Use.
© 2006 - 2009Bills.com LLC. All Rights Reserved.
1. Posted by karen on Thursday 17th September 2009 03:39
In regards to the question about the chase and greentree mortgages you stated that the second could forclose and then the first would follow. I am confused I thought if the first was current they would not foreclose. The only way that would happen is if the second bought out the first. Now why would they do that.... if the value of the first is more then the value of the house. Since we have filed chapter 7 on monday we have not payed our august or september second mortgage payment. The lawyer is saying not to because once the account goes over to the bk department they will negotiate with us. I want to make the august payment so that we are not 60 days behind but only 30 days behind. What do you think we should do?? lawyer says not to waste our money. But you say they could force the first into foreclosure. We want to KEEP the house and filed that as our intentions on the bk papers. WHAT SHOULD WE DO???
2. Posted by Mark Cappel on Thursday 17th September 2009 08:52
First, listen to your attorney's advice. Do not negotiate with your creditors or make payments to them without consulting with your attorney first. You risk harming yourself in the long run by taking action on your own that is contrary to your attorney's advice and your long-term best interest. Second, I agree with your attorney's tactics. Third, regarding the second mortgage holder foreclosing, if the first ignored the second's foreclosure, the property could be sold in a sheriff's sale resulting in the second mortgage holder being paid, leaving the first with the remainder. The first mortgage holder would be foolish to allow the second to act in this manner. My point is that either mortgage holder -- or anyone with a lien on the property for that matter -- can foreclose on a property. Finally, I urge you to stay in communications with your bankruptcy attorney throughout the process, and voice your concerns as they arise.
3. Posted by karen on Thursday 17th September 2009 12:56
SO if the second mortgage files foreclosure on us for not paying them the first and them would work at a deal. The first would pay the second say 5% of the loan amount and then they would continue to collect our monthly mortgage payment from them?? or they kick us out of the house and foreclose as well. The house values are below the first mortgages value I still dont understand the motivation for either of them to foreclose. WHY wont the second just take a settlement from us they would make some money instead of no money in a foreclosure. Have you seen settlements for the second mortgage and at what rate of the balance
4. Posted by Mark Cappel on Thursday 17th September 2009 13:17
Generally speaking, creditors dislike foreclosures because they lose money in the process. Given the choice of losing a little money by negotiating with a willing homeowner and keeping them in the property vs. losing a large amount of money in a foreclosure, only the most evil, obstinate, or short-sighted creditor will foreclose on a property. In a market where home prices are falling, second-mortgage creditors are in an especially tenuous position. Foreclosing where the property value is equal to the amount of the first mortgage leaves second-mortgage holders with zero security. As a response to this, some second mortgage holders have adopted almost belligerent, hard-nosed negotiating tactics in an attempt to bully the homeowners into making their regular payments as long as possible. Pushed, however, and the second mortgage holders negotiate. Some readers have stated to Bills.com that they have made cash settlements for a small fraction of the loan balance.
5. Posted by Phil Rawlings on Wednesday 30th September 2009 19:10
I am 120 days behind on my second mortgage and 60 days behind on my first. When i contacted the second mortgage holder, they simply told me to catch up on the first mortgage in order to put me on a reduced payment plan. my first mortgage holder stated that I could catch up on my own without assistance. I'm concerned about the second because they threatend to foreclose. in a nutshell, is this considered making contact with the lendors? It seemed so simple and non formal. Also, if the second mortgage foreclosed but not the first, can i get put out of my home if i'm current on my first mortgage? If i can stay in my home, what takes place with the second mortgage? will they just hang around or be willing to negotiate a settlement? By the way. My home is listed at 320K but the combined mortgages equal 411K. Thanks
6. Posted by Mark Cappel on Thursday 1st October 2009 09:16
I am sorry for the confusion I see I created in my earlier comments. I should have made it clear that my comments to Karen were in context of another message thread where she was asking about negotiating with the first and second mortgage companies while she was in the middle of a bankruptcy. While in a bankruptcy, it is essential the debtor's attorney be kept informed of any and all communications the debtor has with his or her creditors. If you are not in a bankruptcy, then you may communicate all you want with your creditors. Please reread the article above with the understanding that unless you are in the middle of a bankruptcy, direct negotiation with your mortgage companies is A Good Thing. Generally speaking, mortgage companies hate foreclosures as much as homeowners do. Again, generally speaking, if a homeowner can't afford to pay both the first and second mortgages, pay the first mortgage and open negotiations with the second about making a lump-sum settlement. However, as the above Ask Bill answer states, any mortgage or lien holder has the legal right to foreclose, but may not do so if it does not make sense financially. In your case where the mortgages are $90K greater than the value of the property, it does not make sense financially for second mortgage company to foreclose and therefore may be motivated to negotiate a lump-sum settlement. See an attorney in your state to learn more about your rights.