How to Foreclose on a Second Mortgage

As a second mortgage holder, you can take steps to foreclose on a home in an attempt to get your money back.

If you hold a second mortgage on a property and have legal grounds to foreclose in order to be paid back, you must take certain steps in a certain order for the process to be successful. Because a second mortgage is listed on a title as a secondary lien, behind the first mortgage, payment to the mortgage holder on the second will be made only if there is money left over from a foreclosure sale to pay off the first mortgage lender. Still, there are ways, as a second mortgage holder, to foreclose and get your money.

Difficulty:

Moderately Challenging

Instructions

1. Follow the law according to the mortgage contract. Before you can foreclose, the borrower must be in clear violation of the mortgage contract attached to the property. If you are a private party and not a bank, it is important that you contact an attorney to ensure that you follow your state, region, or city's laws on evictions and foreclosure.

2. Contact the holder of the first mortgage. Because the holder of your first mortgage is first in line to get paid, the only way you, as a second mortgage holder, may foreclose, seize the home your loan is attached to and sell it is to become first in line yourself. After you decide to foreclose, try to make a deal with the other lender. It is common, especially if there is equity in the home, for first lenders to work with holders of second lien holder in situations where the second lien holder wishes to foreclose.

3. Know your options. Essentially, as a second lien holder, you have two options in getting paid off on a bad home loan:

   1. To get in first position to foreclose, you may simply buy the first mortgage from the lender or party that holds the lien and foreclose on the mortgage as the new first mortgage holder.

   2. If you cannot arrange such a transaction, another option exists that will at least get you paid the balance of the second mortgage. This option involves the first mortgage holder purchasing the second mortgage from you, essentially paying you off.

4. Follow the legal foreclosure process. If you are able to somehow get into first lien position and wish to foreclose, you must follow the law, step-by-step, in order to force a homeowner out of a property your lien is attached to. It is therefore wise to hire a real estate attorney familiar with the laws in your area.

Tips & Warnings

• Before negotiating with the holder of a first mortgage, know the value of the home that the mortgages are attached to. It is unlikely that a mutually beneficial outcome will be possible if the home is worth less than is owed on the first and second mortgages.

• Never attempt to begin collection attempts or initiate foreclosure unless you have a legal right to do so according to the existing contract. This may result in legal problems that may not end in your favor. Always hire an attorney to initiate a foreclosure or collection process.