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Can You Foreclose on a Second Mortgage?


In these poor economic times, many families have taken out second mortgages on their home in order to utilize the equity. The money may have been used for repairs to the home or pay off other debts. Many assume that if the first mortgage remains in good standing, the bank cannot foreclose if the second mortgage goes into default. Unfortunately, this is not true. Lenders can come after the home even if the first mortgage is paid on time.

The First Step If Foreclosure Is Imminent

The truth is many lenders do not want to default on a second mortgage. The return for the lender is not worth the time and money invested. A lender will often work with the borrower to bring the loan current. It is helpful if the borrower has a good record of past payments with little or no missed payments. If the borrower thinks that a second mortgage may go into default, it is imperative to get in touch with the lender immediately.

Stay In Communication With The Lender

A second mortgage lender will take a hard stance on foreclosure. The good news is that if the borrower is honestly out of options to pay the mortgage, the lender may be willing to settle the second mortgage for pennies on the dollar. This saves money for both parties. In some cases, the lender holding the first mortgage may buy out the interest of the second mortgage. It is of great benefit for one mortgage company to hold both loans.

Deficiency Balance

Many borrowers have mortgages that are higher than the home’s value. A borrower will sell their home at a price that is less than the amount of their current mortgages. This will leave a deficiency balance. A deficiency balance is the balance after the home has sold for less than the amount of the mortgage. Sometimes a lender will not pursue this balance. If the lender does not pursue it, the deficiency balance can be rolled in with other unsecured debt. Debt settlement programs can then settle the entire amount of unsecured debt into one lump payment.

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