Second Mortgages After a Foreclosure: What Happens to Them

Foreclosure can be as damaging to one’s credit standing as declaring personal bankruptcy. A foreclosure stays on a person’s credit report for up to seven years, and a bankruptcy haunts an individual for almost 10. What happens to a second mortgage after foreclosure? Does it get written off? Does the lien holder continue to demand payment of it, even though the homeowner no longer has possession of the house? The following information will provide some answers to those, and other, questions.


Phoenix, AZ -- (SBWIRE) -- 11/08/2012 -- Generally, when a homeowner has two mortgages, they are in the form of the original purchase loan and a home equity loan. Primary lenders usually get funds from a foreclosure; however, this does not mean that secondary loans can be forgotten. One of the truths regarding a second mortgage after a foreclosure is that it must still be paid. See, if the proceeds from the sale of a house are not enough to pay the balance of the first loan, the secondary lender will not be able to recoup any of its money. When this is the case, that lender may go after the person who defaulted on the second mortgage.

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The second home mortgage loan holder can file a case against the homeowner in civil court, which can negatively affect someone’s credit for 10 years or until the foreclosure judgment is removed from one’s record. If the loan defaulter and the second lien holder can reach a payment agreement before the 10 year time period expires, the person against whom the complaint has been filed will be responsible for all of the filing and court fees. Some states allow the second lien holder to garnish a person’s wages after a foreclosure. This action can affect an individual’s tax returns, also, until the loan amount is paid in full. A second mortgage holder could charge off the debt as a bad debt, but this does not make the homeowner any less responsible for the defaulted-upon amount.

Other facts about a second mortgage after foreclosure are that it would be much better for a person to talk to the second lien holder before going to the primary lender when a foreclosure is looming. The second mortgage lender will be more apt to work with a homeowner who is facing a foreclosure in order to recoup its money. Folks should know that just because a foreclosure has occurred, that does not mean that either the first or second mortgage loans go away. It is entirely possible that both lenders will take a defaulter to civil court.

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