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Information on consequences of default on a second mortgage - The Bills.com Blog
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Information on consequences of default on a second mortgage
Question: I have a 1st and 2nd mortgage financed by the same company. The 2nd is a 125% loan to value. Needless to say, the housing market has tanked and I would be lucky, if I sold the house, to get $342k back, which is what I owe on the 1st. What are the consequences if I do not pay the 2nd but stay timely on the1st? Can they foreclose on the house?
Answer: If you go delinquent on your second mortgage, the lender can foreclose on your house and property. The foreclosure process varies from state to state, but generally takes from 2 to 18 months. It all depends on the terms of your loan. However, normally if mortgage payments are not received within 150 days, the bank can proceed with the foreclosure process. The 2nd mortgage would be repaid after the first mortgage is paid in full. As in your case, having both the first and the second mortgage with the same company will not make any difference. In fact, if the sale price is less than the value of the mortgages held against it, then in some states you could still owe an unsecured balance called a deficiency balance. The good news is that this new deficiency balance (if it exists and if your lenders pursue it) is an unsecured debt that you could conceivably enroll into a debt settlement program
Here?s the good news: Lenders and servicers don't like to foreclose on mortgages. Foreclosures cost more than can be made back, 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. In order 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.
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.
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.
Foreclosure is a serious situation that has serious repercussions. If you can, you want to avoid a foreclosure as much as possible. 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 in depth information about foreclosures on our Bills.com foreclosure page at http://www.bills.com/foreclosure/.
I hope the information provided helps you Find. Learn. Save
Best,
Bill
www.bills.com
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1. Posted by Breanda Cantwell on Monday 18th February 2008 12:24
What happens to the second mortgage on a short sale. Both mortgages are with the same company. The second mortgage has a collection agency hounding us all hours of the day to work out some kind of payment plan. They threathen to our wages to pay back what we owe the interest and finds. What should we do?
2. Posted by bradfordgregory on Monday 18th February 2008 13:31
if you have an agreement with the first mortgage lender for a short sale, you should force the lender to agree to include the second lien mortgage in the short sale agreement. If you are simply letting them foreclose or are doing a short sale without the lender's consent (essentially just selling the home for less than the mortgage values) then it might be true that the lender can come after you for what is left over (called a deficiency balance) and if they win a judgment then they could try to apply the judgment with a garnishment on your wages... that, however, is likely a long way off. You should first try to get the lender to agree to the short sale and if they will not, you should seek the advice of a local attorney (maybe even a bankruptcy attorney as a very credible threat to them).