A lender has the option to foreclose when a borrower become delinquent on their mortgage, whether the mortgage is a first or a second. The foreclosure process varies from state to state, but generally takes from two to 18 months depending on the terms of the loan and the state where the property is situated. Generally speaking, if mortgage payments are not received within 150 days, the bank may proceed with the foreclosure process. Upon foreclosure, the second mortgage would be repaid after the first mortgage is paid in full.
If the sale price is less than the value of the mortgages held against it, then in some states the homeowner may 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. I will explain more about the consequences of being in default on a second mortgage in just a moment.
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 has serious repercussions, especially to a homeowner’s credit score. If you can, avoid a foreclosure, perhaps by agreeing to a short sale. 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.
See Can a Second Mortgage Holder Foreclose if the First Mortgage is Current? for a more complete discussion of this subject. You can find more about foreclosures on the Bills.com Foreclosure information page.
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