A Tale of Two Mortgages
Jul 19, 2011 |
Q: What happens to my first mortgage if I don’t pay my second mortgage?
A: Today many people are carrying both a first and second mortgage on their homes. 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 affect the first mortgage?
All mortgages are foreclosable. But will they foreclose? When the mortgage company writes a mortgage, it puts a lien on the home. So if the second mortgage holder attempts to foreclose, the primary mortgage holder gets first crack at the house to try and recover its money. They must be satisfied first. If any money is left over after the first holder is satisfied, the second mortgage holder gets it. In most cases there is no money left and the second company is left with nothing.
The second mortgage company knows it may get nothing if it forecloses. 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. Its alternative is to sue the homeowners, and the mortgage company will easily win. The company can get a judge to take your assets or garnish your wages. This kind of judgment is open ended, and it will persist trying to collect for many years to come.
In today’s 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 assist people who are having trouble paying, otherwise it is a lose-lose situation for all parties involved. If all parties work together to make the payment more affordable, there is no foreclosure.
You can contact both mortgage holders and try to get the loans modified. It's better if the two loans are with the same company but if they are not it is possible to still make it happen. It takes a lot of persistence and patience.
David Leto is a personal finance blogger at 50plusfinance.com.