It makes more sense for the second lien holder to work with the homeowners to find a solution because the second lien holder in order to take control of the property would have to buy out the first lien holderâ€™s interest. Any lien holder can try to force the sale, but typically itâ€™s the taxes that get paid off first and then the first lien holder gets paid. If a home goes to auction most of the time, there is just not enough proceeds to pay everyone. So in order for the second to actually foreclose and take control of the property, they must buy out the first lien holderâ€™s interest.
In a traditional foreclosure with the first lien holder filing foreclosure, after the auction, the first mortgage is paid off in full then other liens and the second lien would be paid in order of when the lien was filed with the county. That is only if enough money was generated at the auction. However in this market, that rarely occurs. If there is enough money to pay all of the second mortgage, then they would get the balance of the proceeds until their lien is paid in full. Then each additional lien holder gets paid. This is a rare occurrence with declining market values. Bidders at auction are bidding far below market value and even market value is typically less than what is owed on the property.
Even though it is a second lien holder who initiates the process of foreclosure, it will not really change the order of how the liens are paid off through the foreclosure auction. Any winner at the foreclosure auction, whether the bank or a 3rd party, will still end up with a title that has had the liens on it discharged through the county foreclosure auction. From my experience the homeowners will usually be given the option of cash for keys by the lender, where the lender gives them cash to move out or be faced with the possibility of a forced eviction. No matter which lien holder initiates the foreclosure, the process will move through the system in exactly the same way.
A reverse mortgage is a special type of loan available only to older homeowners with full or nearly full equity in their homes. Such owners can borrow against the equity they have built up over the years, but no repayment is necessary until the borrower sells the property or moves elsewhere. If the borrower dies before the property is sold, the estate repays the loan (plus any interest that has accrued.
Yes they can.
In some cases, the first lien holder may let the 2nd foreclose rather than deal with costs
or in the case where there is a lot of equity in the house, but the owner is behind, then the 2nd can foreclose,
cover thier lien and expenses and pay off the first.
Some second lien holders have agreements in place with the first lien holder that would enable them to foreclose their interest without having to pay off or service the first lien. Then the first lien holder could foreclose their interest afterward. In most mortgage (or deed-of-trust) agreements there is a clause that triggers an automatic default for the first if the borrowers defaults on the second, and vice versa.
So if someone is upside down on the first mortgage, it is unlikley that the second mortgage will foreclose. However, the second mortgage might go after you after the first mortgage completes the foreclosure.
First Weber Group
Certified Distressed Property Expert
Scott Miller, Realty Associates, Boca Raton, FL