Foreclosure on a Second Mortgage

2nd Mortgage-Twice the Trouble

When a homeowner can no longer afford to pay both the first and the second mortgages, a second mortgagee faces the possibility of losing its investment.

Defaulting on the First or Second Mortgage

Under the terms of a deed of trust, a second mortgagee can start the foreclosure process when a borrower stops making payments on either a first or a second mortgage.

Trustee's Sale on a Defaulted First Mortgage

If the defaulted first mortgage culminates in a trustee's sale, the second mortgage cancels out. Consult a real estate attorney to determine whether a second mortgagee can pursue collections after foreclosure.

Protecting the Investment

In order to protect its security interest, a second mortgagee often files a Notice of Default as soon as the borrower stops making payments on either his first or second loan.

Responsibilities after Foreclosure

If the second mortgagee takes back the property in a trustee's sale, it must maintain the property by paying the first mortgage, property taxes, fire insurance and utilities.

Return on Investment

By keeping the expenses paid, the second mortgagee hopes to regain its investment either by selling the property or renting it out until property values increase.

References

• Mortgage Professor: Questions About Second Mortgages
• Bills.com: Second Mortgage Foreclosure