Thursday, July 14, 2011

What Happens To My First Mortgage If I Don't Pay My Second Mortgage?

Picket FencingImage by Katy Levinson via FlickrToday many people are carrying both a first and second mortgage on their home. They started with a first mortgage when the home was purchased and later added a second mortgage to do a home remodel or a debt consolidation. Now through a reduction in income or a job loss, they are no longer able to make the payment on the second mortgage. They do earn enough to make the primary mortgage but paying the second mortgage is impossible. What will the second mortgage holder do and how will it effect the first mortgage?

All mortgages are foreclosable. But the question is will they foreclose. When the mortgage company writes a mortgage, they put a lien on the home. Liens on a home when there are two mortgages are applied in order. If the second mortgage holder attempts to foreclose, the primary mortgage holder gets first crack at the house in trying to recover it's money. They must be satisfied first. If any money is left over, the second mortgage holder gets any money that is left. In most cases there is no money left and they are left with nothing.

The second mortgage company knows they may get nothing if they foreclose. Even though you are paying the first mortgage faithfully, the first mortgage holder may begin the foreclosure process if they learn the second mortgage wants to foreclose. In most mortgage documents this stipulation appears.

The result is foreclosure will occur if you stop paying either mortgage note. But the second mortgage holder doesn't necessarily have to foreclose. Their alternative is to sue the homeowners. It's bad for the homeowner because the mortgage company will easily win the suit. They will get a judgment and either get a judge to take your assets or garnish your wages. This kind of judgment is open ended and they will persist trying to collect for many years to come.

In todays mortgage environment, many people are having problems with making their mortgage payments. There is a silver lining to this problem and it is that mortgage holders are more inclined to help out people who are having trouble paying. It's a lose-lose situation for all parties involved, the mortgage company and the mortgage payers. The way out of this is all parties working together to make the payment more affordable, so there is no foreclosure. Start to contact both mortgae holders and try to get the loans modified. It's better if the two loans are with the same company but even if they are not it is possible to still make it happen. It takes a lot of persistence and patience. 

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