What happens to a second mortgage after foreclosure?

by oliver on September 30, 2010

Question:

What happens to a second mortgage after foreclosure?

Answer:

If a first lender forecloses on a property without enough equity in order to pay the second mortgage, the second mortgage will lost its security interest in the house or property. There are two types of loans that can act as a second mortgage namely a recourse and non-recourse loan. A recourse loan, such as HELOC loans, permits the lender to collect the debt owned after the property is foreclosed on by the first loan. On the other hand, a non-recourse loan cancels both the debt owed as well as its security interest upon the foreclosure. There are some state who offers are redemption period in order for the second mortgagee to pay off the debt owed, in addition to the interest and loan fees. If the borrower is able to pay the total amount, he or she can reacquire the property. Since this is only applied to a few states, you can talk to a real estate attorney and ask the details about the foreclosure process in your state. If the debt is said to be uncollectible, the second mortgage can charge-off the unpaid debt. You can check your local tax authority in order to determine whether you have to pay taxes if you charge-off your unpaid debt.

Leave a Comment

Previous post:

Next post: