If a second mortgagee foreclosed for non-payment, he would own the property with the first lien still in place and have to pay it plus the taxes.
Of course as a practical matter, the second lienholder may not want the property, especially in this market. So, he would try very hard to get the mortgagor (you) to pay up before taking the drastic step of foreclosure.
The foreclosure might also trigger acceleration of your first lien note, though, making the whole balance due. You would have to read the note for the first lien to see what consequences there might be.
Of course the first lein holder still maintains its position. That is if the 2nd LH forecloses you out and selle its interest, the buyer would be purchasing subject to the second lien. Not a good position to be in, these days, but it does not change the fact that you have lost your equity position and your home.
A peculiarity of Homeowner Associations (HOAs) is that their lien is actually superior to the first mortgage. When you don't pay your HOA dues, a foreclosure by them should wipe out your mortgage, but it doesn't.
The reason is the CCRs by the builder creating the HOA are filed prior to the sale to the first homeowner. This makes their lien superior, but the CCRs almost always include a subordination clause. A bank wouldn't lend money to buy a house with a HOA if the HOA could foreclose and wipe out their lien. So, the subordination clause says that a first lien mortgage is superior to the HOA's subordinate liens.
This always causes consternation among HOA officials because they often think they can get your property free of liens. They can't unless there was an oversight in the CCRs (HOA covenants, conditions, restrictions) that did not subordinate HOA liens to first mortgage liens.
This means your HOA, if any, can foreclose for non-payment, but receive the property subject to first mortgage and tax liens. When the first mortgagee forecloses, the HOA lien is wiped out.
If you are current on your first mortgage and become delinquent on your home equity loan (which is a form of second mortgage), the second mortgage lender has the legal right to foreclose on your house and property.To know more search
I went through a loan modification d was able to save the 1â€™st and & got a great new deal with Wells Fargo. But just about all the equity was wiped out (didnâ€™t pay the mortgage for a long while).
My home is appraised for $128K, the new 1â€™st is now for $127K. So basically no equity.
The 2â€™nd was a home equity loan for only 16K that I took out before I got into trouble.
I had that one with Wells as well but they wrote it off and sold it 2 years ago.
A few months ago, an investment group bought the bad loan and was represented by a management / collection company and started making threats.
I blew it off for 4 months thinking that sense there was no equity, Iâ€™m now in good standing on the 1â€™st, so nobody was going to move forward with anything. Just didnâ€™t make sense.
But, they didâ€¦.start the process anyway.
In Texas, the 2â€™nd lien holder (bank or investor who bought the bad debt) has to get persimmon from a Civil Judge to foreclose and to put your house on the auction block, and I got served that they were doing just that.
I spoke with a couple of lawyers and basically the 2â€™nd lien holder can force the sale of the home, but who ever buys it must settle the 1â€™st.
I had always thought the 1â€™st would have to be paid off before they could do anything. Not the case. They can force a sale for your house w/ the 1â€™st attached and who knows what could happen.
Depends on how much equity you have but who knows what could happen if your house (w/ the 1â€™st) is sold as a package at auction.
So even with no equity, somebody could buy it at auction, pay off the 1â€™st, and toss me out. Once they have court permission to do so. Despite the fact the buyer would lose thousands. (In my case)
All the same, not worth the risk. I worked out a decent deal with the 2â€™nd lien holder.
Soâ€¦.. Yes they can â€œforecloseâ€ via forcing a county auction sale no matter what the deal is on your first. They might want Joe blow to buy the whole package or they might want to buy it. Either case, who knows what could happen.
Write a letter to the first mortgage holder indicating that you are planning forclosure. Offer to let them purchase the 2nd mortgage usually at a negotiated price. Banks today do not want to lose a paying customer. If the original Buyer is upside down on their loan, banks typically will not lend to someone in foreclosure and they do not want to have another property on their books.
one thing I think you should know that is worth mentioning here...... Even though, technically, they can foreclose - the 2nd lender in most cases will not do so for many reasons. They are in 2nd lien position and therefore you do have a LITTLE leverage with them because of this (not much I might mention). Just call them up and talk talk talk. More often than not they will agree to some type of forbearance or acceptance of payment from you of some kind. Remember foreclosures are very expensive for any bank. Hope this helps. Andrew
I think you get the idea. A junior lien holder can foreclose on a property. Speak to an attorney that handles real estate cases; they may be your best alternative.
Javier Olmedo, ABR, GRI
Florida Realty of Miami
Just some things to think about
1st lien holder decision what would take place 2nd lien has smaller stake in ownership of property. You won't be able sale the home unless 2nd lien holder release or paid off at closing.
They can and that is a really bad situation to be in. The second may be very aggressive and knock the first out of position. My advice is to talk with the first and see if they can refi you and help protect your home and their investment. Be careful. Best
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