Rights for a Second Mortgage on a Foreclosure
A second mortgage is more commonly referred to as a junior lien. In some loan scenarios, many home buyers will take out what is called an 80/20 loan, which is a first mortgage of 80 percent on the property and then the remaining 20 percent loaned as a down payment. Since the second mortgage will be repaid only after the first mortgage is repaid in the event of a loan default, it comes with a higher interest rate.
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Join the Proceeding
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When a primary mortgage holder is going to file foreclosure against a defaulted borrower, the best way for a second mortgage holder to recoup some of its losses is by joining the lawsuit. This will ensure that the junior lien holder may receive part of the sale profits when the home is sold at a foreclosure auction.
Negotiate for Settlement
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A second mortgage holder can negotiate with the home owner for a settlement amount prior to the foreclosure sale. This is normally most effective when the home owner is trying to sell the home as a short sale.
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Judgment Filing
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Should a second mortgage holder not be compensated from the foreclosure sale of a property, the lender has the option of filing a legal judgment against the previous owner of the property. This will follow the prior owner for 10 years and can help second mortgage holders recover some of their losses.
Property Lien
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Another option for the second mortgage holder is to place a lien on the property in which it has an ownership interest in. This works particularly well if the loan was originated as a home equity loan or line of credit geared for home improvements.
Considerations
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Unless the second mortgage holder takes action prior to the foreclosure sale, its interests can be wiped out with the courthouse sale. It's important to take action early on in the process to prevent loss.
Expert Insight
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Keep accurate accounting records and a good working partnership with the primary lender as a second mortgage holder. This can assist in keeping your accounting records up to date and keep you informed about loan status changes at any time.
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