What Happens to a Second Mortgage in Foreclosure in Michigan?
Michigan foreclosure laws address how property liens are satisfied in a foreclosure sale. The first mortgage is a senior lien and any liens that come after it are junior liens, including the second mortgage.
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Second Mortgages
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Second mortgages are either home-equity lines of credit or a secondary mortgage carried on a property from a refinance or a conventional loan purchase. A secondary mortgage uses the equity in the property as security, carrying a higher rate of interest than a primary.
Property Sale
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The balance of a lien is not available until after the sale. The sale of the property occurs either at a public auction administered by the county Sherriff's department or the property is sold on the open market by the bank. Once the sale is completed, the proceeds are credited first to the primary mortgage holder and then to the secondary mortgage holder. If there is not enough to satisfy both liens, the secondary mortgage holder can file a deficiency judgment.
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Deficiency Judgment
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On a home that carried a first mortgage balance of $100,000 and a second mortgage balance of $50,000 that sold as a foreclosure for $125,000, the deficiency balance is determined once the first mortgage has been satisfied, and the remaining $25,000 goes to the second. In this example, the deficiency calculation is $25,000. The second mortgage holder will file a demand for payment with the courts for the shortage. Deficiency judgments remain on a consumer's record for up to 10 years, negatively affecting his credit and must be satisfied prior to obtaining a new mortgage.
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References
- Photo Credit municipal building, wide angle image by Alexey Stiop from Fotolia.com
