What Happens To A Second Mortgage After Foreclosure?

Foreclosures have become an everyday happening in our current economy. Experiencing a foreclosure used to carry a stigma of not paying your debts. Those ideas have changed considerably. It’s enlightening to see a family that has managed to continue making their regular mortgage payments.

Original Mortgage Is Paid First

When a mortgage loan is considered in default and there is a second mortgage, the second mortgage must also be paid. However, when the property is sold the original mortgage is paid off first and if there are any funds left they will be applied to the second mortgage.

The Property Must Have A Clear Title

The second mortgage is considered a lien against the property. Just as in the case of an automobile repossession the lien must be satisfied before the property is considered to have a clear title. The property must have a clear title before it can be sold to a new owner. This is one of the main reasons for the closing company conducting a title search.

Legal Judgment may Be Necessary

The lender who has foreclosed on the property will get a legal judgment against the original borrower if the sale of the property does not bring in enough to pay off the balance of the mortgage loan. The lender on the second mortgage has the same right of legal judgment.

Possible Help From New Buyer

There may be cases where the new buyer would help in rectifying the situation by making provisions for the second mortgage to be paid in order for there to be a clear title but this is not a normal procedure. It is mainly up to the borrower in default to take care of the second mortgage.

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