If you’re going through a foreclosure on your primary mortgage, you may be left wondering what is going to happen to any other mortgages or liens on your property. Depending on the cause of your foreclosure or how it happens, a foreclosure can proceed in a few different ways.
Even though second mortgages are pretty common, it’s understandable that you may be confused about how they function through foreclosure. They’re “secondary” mortgages, but that doesn’t necessarily mean they take the back seat or are ignored in issues of foreclosure.
Foreclosure can be difficult and stressful, especially if you are dealing with multiple mortgages or liens. If you’re facing foreclosure, contact Joshua Denbeaux today to learn more about how we may be able to help you stop or avoid foreclosure on your home.
What Is a Second Mortgage?
A second mortgage is any additional loan taken out with the home as collateral while the original mortgage is still being paid. You may have heard second mortgages referred to as an additional line of credit, a home equity loan, a home equity line of credit (HELOC), or by other names.
Second mortgages usually use the equity that you have in your home from the payments you’ve made to your original mortgage. With a second mortgage, you can typically expect a shorter term and a higher interest rate than your first mortgage, but you will be able to access a larger amount of money at once or each month, depending on how your second mortgage pays out.
What Is a Lien?
A lien is a legal claim to rights or assets that are being used as collateral for a loan or debt. Someone having a lien against your property means they have the right to seize your property if you default on your loan.
If you are using your house as the collateral for your loan, as is the case in most second mortgages, the loan is considered a lien on your property.
Can a Second Mortgage Foreclose?
Your first and second mortgage lenders both have the same amount of right to foreclose. However, a second mortgage lender may be less likely to foreclose because they will have to pay off your first mortgage. Because your second mortgage lender has to pay off your first mortgage, they will typically only proceed with a foreclosure if your property is worth more than what you owe on your first mortgage. The more equity you have in your home, the more likely a second mortgage will foreclose because they will have a smaller first mortgage to pay off.
If you owe more than your house is worth, your second lender is less likely to pursue a foreclosure because it is unlikely they’ll get enough money from the sale of your home to satisfy the debt. In this type of situation, they may have the option to file a lawsuit to collect on the note instead of foreclosing.
However, just because it’s not as common for foreclosures to be brought by a second mortgage holder doesn’t mean they don’t happen. And if your primary mortgage forecloses on your home, it can get even more complicated if you also have a second mortgage.
What Happens To a Second Mortgage After Foreclosure On The First?
If your first mortgage forecloses and your house is sold at a sheriff’s sale, your second mortgage isn’t automatically satisfied. It will still be a debt that you have to deal with. In other words, if you lose your home in foreclosure on your primary mortgage, you will still have to pay off the second mortgage.
When a house is sold at a sheriff’s sale, any liens will be extinguished, but that doesn’t mean the debts are cleared. Extinguishing liens are used to clear the home’s title for the sheriff’s sale and the new owner. You are still responsible for any debts with the lenders themselves.
When your house is sold at a sheriff’s sale, any surplus funds can be used to pay off other liens on your property. But in most cases where a primary mortgage forecloses, the second mortgage can be much higher than the sale amount, and your finances are even more at risk than in a single-mortgage foreclosure.
Stop A Second Mortgage Foreclosure
If you’re going through foreclosure with multiple mortgages or your second mortgage is foreclosing, a foreclosure attorney can help you stop or avoid foreclosure. Foreclosures with multiple mortgages can be confusing and more complex than single-mortgage foreclosures.
Working with an experienced foreclosure attorney may help you navigate a multiple mortgage foreclosure and help you preserve your finances and assets as much as possible.
Joshua Denbeaux is an experienced New Jersey foreclosure attorney. Contact us today to learn more about your foreclosure options and how we may be able to help you through your foreclosure.
