Second Mortgage Default

Can a second mortgage lender foreclosure your home?

2 Answers

The second mortgage holder certainly can foreclose. The question, though, is whether it makes any sense for them to do so. You see, the second mortgage holder would have to pay off the first mortgage holder in order to do so. Thus, if the amount of the first and second mortgages combined is close to the value of the property, it probably wouldn't make any sense for the second mortgage holder to foreclose -- there would be a good chance that the property would bring less than its value at a foreclosure auction, resulting in a loss to the second mortgage holder.

On the other hand, there could be alot of real equity in the property. In such a case, a second mortgage holder would be more inclined to foreclose -- there'd be a pretty good chance that they would get their money back and then some.

Even if the second mortgage holder didn't foreclose, however, it's not a good idea to neglect any mortgage payments. The second mortgage holder could still issue a notice of default or obtain a money judgment, both of which would be detrimental to your credit.

Juan is 100% correct so I'm not sure why this question is catagorized as partially answered. But, I can elaborate some.

Second lien holders and even HomeOwner Associations often do foreclose on properties when there is a 1st lien holder. His point is the 1st lien holder typically forecloses first but, this is not always.

What typically happenes is once the second lien holder or HOA forecloses on the property the Deed is now filed in the name of this lien holder. If the 1st lien holder wishes to foreclose then they are going to have to deal with the deed holder as well.

Laws vary by state and a second lien holder is going to decide which approach to take based upon the foreclosure laws in the state combined with what they preceive to be the value of the property vs the positon of the other lien holders.

Remeber each lien holder is attempting to protect their investor and minimize any losses. When they know they are in a low postion sometimes it does make 'cents' for them to foreclosre first as they can strenthen their position with the 1st lien holder by having their name on the Deed.