What Happens If I Don’t Pay My Second Mortgage?
On the off chance that you have a second mortgage on your home and fall behind in payments, the second mortgage lender may or probably won’t abandon, contingent upon the value of your home. Read on to discover what happens in the event that you quit making payments on a subsequent mortgage and when that lender may choose to initiate an abandonment.
A subsequent mortgage is a loan you take out utilizing your house as security that is junior to another mortgage (a first mortgage). A couple of normal examples of second mortgages are home equity loans and home equity lines of credit (HELOCs).
A senior lien, for example, a first mortgage, takes need over a lesser lien, for example, a subsequent mortgage. Need determines which lender gets paid before different lenders after a dispossession sale. (Learn increasingly about lien need.)
Priority Is Determined by the Recording Date
Generally, need is determined by the date the mortgage or other lien is recorded in the province land records. In spite of the fact that a few liens, like property tax liens, have automatic superiority over essentially all earlier liens. First mortgages are, as the name recommends, typically recorded first and are then in first lien position. Second mortgages are usually recorded straightaway and are in this way in second position. Judgment liens, if there are any, are often junior to a first mortgage and conceivably a subsequent mortgage, as well as perhaps other judgment liens recently recorded by different creditors. (Learn progressively about when a creditor is allowed to place a lien on your property.)
What Happens to a Second Mortgage’s Priority if You Refinance the First Mortgage?
On the off chance that you refinance your first mortgage, that lender will require the second mortgage lender to execute a subordination agreement. In a subordination agreement, the second mortgage holder consents to subordinating its loan to the refinanced loan. The subordination agreement allows the refinanced loan (the newest loan), which would be junior based on the chronicle date, to bounce ahead in line and take the place of the first lender in quite a while of need.
What Happens When You Default on a Second Mortgage?
A lender can decide to dispossess when a borrower becomes reprobate on its mortgage, regardless of whether the mortgage is a first or a subsequent mortgage. In the event that you default on your first mortgage, that lender will likely start abandonment procedures. On the off chance that, then again, you default on a subsequent mortgage, regardless of whether that lender initiates a dispossession will depend mainly on the current value of your home.
Homes With Equity
In the event that you have equity in your home (this happens when the value of your home is greater than the amount you owe on your first mortgage), your subsequent mortgage is at least partially secured. At the point when you fall behind in payments on the subsequent mortgage, the second mortgage holder will probably initiate a dispossession because it will recuperate part or all of the money it loaned to you once the property is sold at an abandonment sale. The greater equity there is in the property, the greater the likelihood that the second mortgage holder will abandon.
In the event that your home is underwater (this happens when the value of your home is not exactly the amount you owe on your first mortgage), your subsequent mortgage is successfully unsecured. This means that if the second mortgage holder were to dispossess, there wouldn’t be sufficient continues from the abandonment sale to pay anything to that lender.
By and large, in case you’re underwater and fall behind on payments for your subsequent mortgage, the holder of the subsequent mortgage will probably not start an abandonment since all the returns from the dispossession sale would go to the senior lender. In any case, the lesser lender could at present sue you personally for repayment of the loan.
Lawsuits From Lenders on Second Mortgages, HELOCs, and Other Junior Lienholders
Regardless of whether the second mortgage holder chooses not to abandon, that lender can sue you to recuperate the money it loaned you. This usually happens after the primary mortgage holder abandones, however it could happen sooner. In a first-mortgage abandonment, any lesser liens—these would incorporate second mortgages and HELOCs, among others—are also dispossessed and those lesser lienholders lose their security interest in the real estate. This is alluded to as a “sold-out junior lienholder.”
Sold-out junior lienholders. At the point when a lesser mortgage holder has been sold-out in a first-mortgage abandonment, that lesser mortgage holder usually can, contingent upon state law, sue you personally on the promissory note to recuperate the money. (Learn more in What Happens to Liens and Second Mortgages in Foreclosure?)
How second mortgage holders gather from you. On the off chance that the lesser lender wins the lawsuit and gets a money judgment against you, generally the lender may gather this amount by accomplishing such things as garnishing your wages or demanding your bank account. (Learn about techniques that creditors can use to gather decisions.)
Petitioning for financial protection may give some alleviation. A bankruptcy can diminish or eliminate this kind of debt.