MLM Directory

What happens on a second mortgage default?

I got behind on my second mortgage (my first is current) after my wife lost her job but she has recently re-gained employment. Now the second has been turned over to a law firm, who is asking for us to catch up payments (with no loan forebearance, modification of any kind) and if we don't comply, they will continue with the legal process, which I understand to be a judgment. What happens at this point? I have been told by some that if a judgment is entered by your second mortgage lender, they can't really do much unless the house sells at some point. Is this correct? With the current market conditions, my house is underwater, so "short-selling" would only benefit the first mortgage lender. Can they attempt to seize assets (what little I have)?

Public Comments

1. I recommend that you talk to an attorney who specializes in real estate law immediately. The holder of the second has substatntial legal rights. The holder of the second can foreclose if he chooses to do so. Essentially the holder of the second could take your house in foreclosure subject to the mortgage of the first. I recommend that you talk to an attorney immediately.
2. If you don't make the payments on ANY mortgage, the lender can foreclose and evict you from the property. In some states, it the lender gets the house at a foreclosure sale and sells it for less that is owed them, they can get a deficiency judgment against you for the amount of their loss. What state are you in?
3. The second mortgage holder can foreclose. They can force a sale of your house subject to the first mortgage. If there were no bids at an auction, the mortgage holder could bid its interest and take the house. In today's market, where people may have significant negative equity, lenders choose not to proceed with foreclosure. This may be worse for the homeowner in the long run as interest continues to accrue at a judgment rate (often higher than the contract rate). Lenders are anxious to work with borrowers at this point. The law firm probably will proceed to judgement but the fact of the matter is they want to get paid what they are owed. If you present them with reasonable options for repayment, they most likely will accept them. The problem becomes when you offer less than the interest due. That just puts you behind more and more every month. I would determine what is owed on the second mortgage. Request payoff AND reinstatement figures from the attorney (they have to provide them in most states if you request them in writing). Determine how you can get out of this debt if that is possible. If you cannot, then you will need to seek legal counsel and discuss a chapter 13 bankruptcy. Don't forget, even if they do not pursue the foreclosure option, you will have a judgment on your credit report and your score will drop significantly. I doubt a ch. 13 would hurt you much, if at all, at that point. Best of luck to you.