What is a Texas Second Mortgage?
Second mortgages are mortgages or lines of credit against a home that already have a first mortgage. Texas legalized second mortgages on homes in 1997 by an amendment to the state's constitution, becoming the last state to legalize these loans.
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Laws
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Second mortgage holders must take extra steps in Texas to foreclose on a home. Texas states that when home equity loans are taken out as second mortgages on a home, the fees cannot exceed 3 percent of the loan amount. Home equity lines of credit and second mortgages cannot exceed 50 percent of the current market value of the home. Texas limits the amount of second mortgages so the first and second mortgages combined cannot equal more than 80 percent of the home's value.
Limits
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Texas does not permit second mortgages as a line of credit for a business. Second mortgages can be used for renovations, new construction, college expenses or to buy additional properties.
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Prioritization
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Texas law classifies second mortgages as second lien mortgages. The second mortgage has a lower priority to the first mortgage if the home is sold or foreclosed upon. Senior mortgage holders can chose to become lower priority, making the first mortgage classified as a second mortgage. If the first mortgage is paid off, the second mortgage becomes the senior mortgage.
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