Foreclosure – The rights of the second mortgage holders

More often than not, homeowners have multiple mortgage loans on their property, besides the judgment claims. For instance, you might have taken out second mortgage loan, popularly known as home equity loans, to cover the price of your home or to cover the remodeling costs of your home. Now that you probably know that if you stop making payments on your first mortgage loan without negotiating with your lender, foreclosure is inevitable. When you have multiple mortgages and a second lien-holder forces the property into foreclosure, you question the legal rights of the mortgage holders. What you might not know is that the first mortgage lender has the right to seize your home, and even the second mortgage lender can force your home into a foreclosure.

The second mortgage holders may foreclose on a property but under certain specific situations. Foreclosure is nothing but a legal proceeding that is entirely initiated by the mortgage lender when the borrower fails to make payments according to the terms of the loan. Usually, the mortgage payments are supposed to be made on time and each lender, irrespective of the order of the loans can legally take actions to seize your real estate property in order to recuperate the money. Read on to know whether or not the second mortgage lenders can force your property into a foreclosure.

The first and the second mortgage loans – A look into the basics

Generally, the first mortgage is the mortgage that was initiated during the time of buying your home and the one that was originated before any other mortgage loan. On the other hand, a second mortgage loan is the second secured loan that was taken out by the homeowner on the real estate property while the older one still remains unpaid. You might be rather surprised to know that both the lenders have the right to foreclose on the property if the loan isn’t paid on time.

The types of second mortgage loans

Unlike the first mortgage loans, the second mortgages are typically those loans that are taken out against the equity of the borrower or the portion of the value of the property, the value that the homeowner holds free of any outstanding mortgage loan. Second mortgage loans can take the form of home equity lines of credit or HELOCs and home equity loans. The total amount of the principal will be given to the borrower at the time of closing.

Second mortgage lenders and foreclosures

Even when the first mortgage lender isn’t defaulting on the mortgage payments, the second mortgage lender will still be able to initiate foreclosure proceedings. The second mortgage lender can still take the usual steps that are required to foreclose the property and he also requires informing the first mortgage lender about his intention to foreclose the property. The first mortgage lender is bestowed with the rights to attend the foreclosure hearings and object the action. He might even demand special consideration in getting a portion of the foreclosure action.

Making one lien superior to another – The subordination agreements

Have you ever heard of subordination agreements? They’re legal documents that are used by the mortgage lenders to make a lien inferior or superior to another. When a first mortgage loan is being refinanced, the lender may need a subordination agreement from the existing second mortgage lender in order to make the former loan inferior. The newly refinanced home loan will be inferior to the second mortgage.

In case the second mortgage lender isn’t able to foreclose due to the priority of the first mortgage lender, the second mortgage lender might still be able to recover the loss and this is called a deficiency judgment. Therefore, when you have a first mortgage loan as well as a second mortgage loan, make sure you know the intricacies before you file a foreclosure.