By Admin on Jan 30, 2009 in Renting & Real Estate
Mike asked:
I am currently thinking of selling a property and the purchaser wants me to hold a 2nd mortgage. What are my rights if foreclosure was to happen? Can I buy out the mortgage from the first holder? If I can’t I will most likely lose my mortgage?
I don’t think it will happen but I need to know before I decide. Any help would be appreciated.
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I am currently thinking of selling a property and the purchaser wants me to hold a 2nd mortgage. What are my rights if foreclosure was to happen? Can I buy out the mortgage from the first holder? If I can’t I will most likely lose my mortgage?
I don’t think it will happen but I need to know before I decide. Any help would be appreciated.
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If you are not getting paid on your second mortgage you do a normal foreclosure. If the 1st mortgage starts a foreclosure you must make up all past due payments and foreclosure expenses and start a foreclosure of your own for what you paid the 1st lender.
SINCITY | Jan 31, 2009 | Reply
You are going to be the last person to get paid in case of foreclosure no matter who starts it since you will be in second lein position. If the first lender does not recoup all of their money through foreclosure then you are out. I would not risk money you do not mind potentially loosing.
I would be careful if this second mortgage is up to 100% there is less risk to you if the second mortgage has a lower LTV.
nick k | Jan 31, 2009 | Reply
Depending upon the State you are in if you are in second position and you foreclose then you can take the property back subject to the loan that is in first position. Yes you could buy out the first mortgage as well though the lender may have tacked on penalties and missed payments to the total.
If the first position loan forecloses first and you find out about it then you’ll have to make up any missed payments and penalties the owner has incurred in order to bring the first loan current. Once that’s done you can start foreclosure proceedings yourself.
So, if you are going to hold a second mortgage it is important to be informed if the owner misses a payment on the first loan. Usually you can file a document with the local Recorders office that will alert you if a Notice of Default if filed by the first mortgage holder. Then you can bring the first mortgage current before the missed payments and fees get too high. And, if the owner is not paying you either then you can start foreclosure first. If the owner is not paying you but is current on the first then you can foreclose. You will still take the property subject to the first loan. If the first loan forecloses and you cannot bring it current then your second loan will get eliminated at the subsequent foreclosure auction.
So, be sure there is plenty of equity in the home if you carry a second. If there isn’t then you’ll have no room to foreclose if necessary. Why bring the first current and go through the costly process of foreclosure if you’re going to get back a property that is worth less than the loan amounts? So, if you do have to foreclose you need enough equity in the home to be able to pay for possibly bringing the first loan current (if they foreclosed first), foreclosing yourself, then selling the property and paying off the first loan completely. Again, it depends upon the State the property is in as well so check with a local real estate attorney.
Good Luck!
JT | Feb 4, 2009 | Reply