It is not unusual for a property owner to have more than one mortgage on his property. Perhaps he has a home equity loan or a second, or junior, mortgage to defray college expenses or make some much-needed home repairs. While foreclosure generally focuses on the primary mortgage, the lien holder(s) for a junior mortgage will be lining up for their share of the foreclosure proceeds. The following will look into second mortgage foreclosure to clarify whether or not it actually exists and what to do if it affects an individual.
Pittsfield, MA -- (SBWIRE) -- 12/03/2012 -- A first mortgage is the one new homeowners use to purchase the property. A mortgage is actually two documents – the note for the loan, which is the prospective homeowner’s promise to make the payments, and the mortgage itself, which makes the property the collateral for the loan. Junior or second mortgages are generally used not so much for the home itself, but for other things. Some of these include taking out a home equity loan to help with credit card debt or automobile purchase. When a lender sends a Notice of Intent of foreclosure, second mortgages and foreclosure come face-to-face. The lien holder of the junior mortgage wants to get its money back and will take the necessary steps to do so.
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The lender takes action on both the first and second mortgage in foreclosure processes. However, both mortgages are not treated the same. There is a method of payment, a hierarchy of sorts, that defines which lender gets paid first and how much it receives. The lien holder of the original mortgage always gets paid first in foreclosure proceedings. There may also be some other claims against the property, leaving an insufficient amount of money left to pay the second mortgage off. Most often, junior mortgage holders get next to nothing out of foreclosures.
Second mortgages and foreclosure are not exactly friends. Some issues that preclude payment of the junior mortgage include repayment made to the first mortgage holder; other liens against the property, such as tax liens; foreclosure charges and other fees due to the priority lender; and the recording dates and loan types of other loans against the asset. A quirk of foreclosure is that the junior mortgage often simply fades away once it is complete. This does not mean an owner no longer owes the money; it simply means that the second mortgage holder can no longer look to the property to get it. There are steps a 2nd mortgage holder can take, though, to get its investment back, so be prepared to receive a letter from it soon after foreclosure completion.
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