Second mortgage lenders have a distinct disadvantage in the face of default. If you don’t make your second mortgage payments, the second lienholder must wait to see how much money the first lienholder gets before the second lienholder receives anything.
Typically, the second mortgage lender walks away with nothing because of the lack of equity in the home. When a borrower has a second mortgage, it means they borrowed against the equity in their home. Depending on the amount of equity left at the time and the value of the home at the time of the default, there may not be enough money left for the second mortgage company to receive anything.
What Can a Second Mortgage Lender Do?
A second mortgage lender has a few choices. The exact choices available will depend on the agreement with the lender. Since any real estate financing through a bank has a contract in writing, you can refer back to your mortgage and note to determine what a lender will do.
If you get to the point of foreclosure, the first mortgage lien will go away because the first mortgage company takes possession of your home. Your credit score will likely fall as a result of the foreclosure. Your second mortgage, on the other hand, stays in effect. After the foreclosure, there is no longer anything securing the loan, but the debt still exists.
So how long can a second mortgage company hold you liable? It depends on your state’s laws, but it can vary between 3 years and 15 years.
What are Your Options?
During the time that your second mortgage loan is in default and/or charged off, you have a few options:
- The lender can sue you – This is the least ideal situation. The lender does have the right to sue you as long as the statute of limitations doesn’t expire. If the lender wins, they may have the right to garnish your wages or liquidate other assets.
- Negotiate a settlement – You may be able to work with the second mortgage lender to get a settlement. This means they will settle for less than the full amount owed. If this is the case, you should get in writing that the lender is willing to accept the amount as payment in full and will report it as such.
- File for bankruptcy- Your final option is to file for bankruptcy. If you don’t have the means to pay the debt, this may be the best option. Yes, it will hurt your credit, but it will stop any further collection actions against you.
Just what a second mortgage lender does really depends on where you live and the circumstances surrounding your loan. The lender is more likely to come after you if you have assets that can satisfy the debt. Your best option is to work things out with the lender so that you get terms that are somewhat favorable to you and you don’t have to deal with a legal nightmare.Click to See the Latest Mortgage Rates»