Foreclosure in Salem>Question Details

Karima, Other/Just Looking in Salem, NH

Can a second lien holder forclose on a property?

Asked by Karima, Salem, NH Wed Sep 1, 2010

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It is somewhat uncommon for the second mortgage lender to file for foreclosure. In most cases the first mortgage holder will start the process. When a second mortgage holder files for foreclosure like any lien holder they are protecting their interest in the asset. Most times, if a homeowner is too far behind on the second but up to date on the first, the second would declare foreclosure on the house.

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 holder’s interest. Any lien holder can try to force the sale, but typically it’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 holder’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.
1 vote Thank Flag Link Sat Sep 4, 2010
Karima - Scott explained it the best. Yes, any lien holder inlcuding a land lease holder, can force foreclosure. Just because it does not necessarily make sense don't count on that. Too often banks have policies that are followed because they are policy. Many people don't know that you can still negotiate with the bank once they have started the foreclosure process and even after, yes after, the house has been sold at auction. That last quirk however is a state specific issue.
1 vote Thank Flag Link Wed Sep 1, 2010
Hi Karima

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.

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0 votes Thank Flag Link Wed Oct 9, 2013
Hi Karima:

Yes they can.

In some cases, the first lien holder may let the 2nd foreclose rather than deal with costs
of foreclosure.

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.

Good luck.
Perry
Web Reference: http://www.ruthandperry.com
0 votes Thank Flag Link Mon Sep 6, 2010
Technically, a second lien holder has more options that what's already been presented. A second lien holder could file to foreclose, and sell their note to an investor (who would foreclose and take the first subject-to or short 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.
0 votes Thank Flag Link Mon Sep 6, 2010
The second lien holder will have a drive by appraisal or BPO completed before takling any action, they will assess if the value in todays market is there to cover the first and second mortgage plus costs of foreclosure. if the value of the home does not cover the second mortgage amount, they will not spend any more money tp foreclose as there is no chance they will recover anything nevermond have to pay off a first mortgage. If the property is worth enough in todays market to cover the first mortgage and the second mortgage, they can, will and have foreclosed on properties here in NH.
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Mon Sep 6, 2010
If there is a lien they can foreclose. The issue is it worthwhile for the bank to foreclose. Each lien has a priority when it was recorded and the prior liens need to be paid off before the latter liens get funds.

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.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

http://www.milwaukeebailout.com
0 votes Thank Flag Link Sun Sep 5, 2010
Yep....

Even HOA can and do foreclose.
0 votes Thank Flag Link Sat Sep 4, 2010
Karima New Hampshire law for foreclosure is simpler than alot of other states, the second lien holder can iniate foreclosure , the first lien holder would then need to be paid off to get clear title for the second lien holder to sell. The second lien holder has to give you proper notice with the ability to cure your default, they then have to publish teh foreclosure notice for 3 consecutive weeks prior to the foreclosure then can foreclose. It is in your bets interest to try and negotriate with them with a forebearance or loan modifciation, if you are close to foreclsoure you may want to see an attorney for guidance.
0 votes Thank Flag Link Thu Sep 2, 2010
They can also put a 3rd lien on your home, assuming they can get a judgement in court for default, which might cause more difficulty with your first lender depending on the language in your first mortgage Agreement. Seek a free 30 minute free consult with a local real estate attorney and bring your first mortgage loan Agreement so he can look at the language. Good luck.
0 votes Thank Flag Link Wed Sep 1, 2010
Hi Karima. Yes, they can.....BUT--they need to pay off the first lien/mortgage/loan. Then, and only then, can they foreclose. So if I'm a bank with a second lien against your home for $5000, but the balance on the first lien/mortgage is $775K, it might not be worth it for me to pay $775K to get my $5000, right?

GOOD LUCK!

Scott Miller, Realty Associates, Boca Raton, FL
0 votes Thank Flag Link Wed Sep 1, 2010
Yes they can.

Chris Martindale
0 votes Thank Flag Link Wed Sep 1, 2010
good evening..yes, they certainly can...
best regards.
bob mcclure
mortgage one
brighton, michigan...
0 votes Thank Flag Link Wed Sep 1, 2010
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