This is a good question, because lots of people think they are in the clear if they get foreclosed on by the first mortgage loan. It is best to review the options when the foreclosure process starts. Lots of people are shocked when the second mortgage sues for deficiency and collection.
First Weber Group
Certified Distressed Property Expert
Have you done anything yet?
I work for an attorney and we do mods as well. Are you in a financial hardship? Is your first loan more than 31% of your income? Have you lost income or lost value in your home?
I think you should try a mod its worth it.
If you have substantial assets it's a risk they'll purse. Not many stories out there of 2nd mortgage holders suing however. Most foreclosures to date have seen most of their net worth go away and it's expensive to file suit and get a judgment, only to have the defendant file bankruptcy.
If you don't have much in the way of assets for them to go after, the unsecured debt will probably get sold to a collection agency for a fraction of what's owed, then the collection agency will do whatever they can to get money out of you.
In a recourse loan, the lender may go after you for the amount of the loan at any time. Even if it is unsecured debt, you may be responsible for the amount owed and you may need to file this unpaid debt as income on your taxes. If this does occur and you no longer live or own the home it was once secured by then I would seek bankruptcy counseling right away to possibly eliminate this liability once and for all.
Diane Wheatley, Broker