Default on second Mortgage ConsequencesFailure with second mortgage consequences
It is a circumstance that poses a clear threat of enforcement, but my previous practice was that many individuals do not fully grasp this fact and seem to completely overlook the threat. Let's take a close look at some of the false beliefs humans make and what you need to know if you are faced with a similar precedent.
As one of the most frequent hypotheses making men, a pledgee of the second item (the creditor who granted the second mortgage or HELOC) does not have the statutory right of foreclosure, while the first mortgage is currently timely pay. A further variant of this misconception is that the second lien holder does not have the authority to enforce without the full co-operation of the first lien holder.
In both cases there is no doubt that a second lien holder has the right to proceed to execution. Everything that is necessary is for the second creditor to assume the expenses of partitioning. As soon as the real estate has been auctioned, the second creditor still has to make the first mortgage payment before he can collect the money for the distressed debt or the expenses of the lawsuit.
However, there is nothing about a first mortgage that will block enforcement by a second creditor. How about the limitation period? "I' ve exceeded the limitation period in my state, so they can' keep up with me. Home owners are told that their state, for example, has a four-year limitation period on claims after a contract delay, and they expect this to apply to their unsettled second mortgage.
Indeed, the legislative term may come into play when a house has already been foreclosed and a remaining deficit equilibrium persists after the purchase. It is in this case that the second right of pledge expires when the real estate is sold, so that the limitation can definitely be a determining reason.
But if you still reside in the real estate and it has not been excluded, then the second pledge stays in place. There is no statutory period of prescription for mortgages. Irrespective of whether they are in default or not, all associated interests shall continue to exist and regardless of any limit on the term.
Thus, it does not make any difference whether you have not repaid the second mortgage in five years and your state has a four-year limitation period. Loan providers still have the right to enforce their claims. A further frequent error made by humans is to believe that the risks of enforcement are practically non-existent as long as the home remains "under water".
One thing many will be able to tell the difference between a house that is under water in relation to overall mortgage indebtedness (first and second mortgages combined) versus one that is under water in exchange for the first mortgage alone. These are two totally different types of risks. Your $350,000 owed on the first mortgage that is currently disbursed, while your failed second mortgage of $100,000 will remain unsolved.
Therefore the mortgage is $450,000 on a home value $400,000, so at first sight it looks like the home is under water, right? More specifically, it is only partially under water, because a sell of the home would be the entire first mortgage and part of the second mortgage covered.
There is $50,000 house value in this example that covers the $100,000 second mortgage so that the mortgage is actually 50% "in the money". "Would a creditor file for enforcement under these terms? While there is still the question of expense to consider, $50,000 in shareholders' funds is enough to recover the expense of most foreclosures, so these numbers definitely constitute an endangered asset.
Your $350,000 owed on the first mortgage currently due, and your failed second mortgage of $100,000 will remain unsettled. Its entire mortgage liability of $450,000 is crossed by the house purchase with $50,000 surplus capital. Obviously this house is not under water at all and is therefore a natural objective for enforcement by the second lien holder.
As well as the actual enforcement itself, there is also the possibility of loss of part or all of the $50,000 of security principal due to enforcement charges and an auction sale below the fair value (which is normal for non-performing sales). It is critical for home owners to realize that the risks associated with defaulting second mortgage loans increase as the value of the home grows over the years.
Concerns here are that this might evolve at a point when the owner no longer pays much heed, perhaps several years after the initial failure. And with little or no collecting activities during all this enticing to think that nothing will ever come to pass in the world.
However, this approach does not take into consideration the higher risks associated with an increase in the value of real estate. When the default occurred at a point in history when the home was less valuable than the first mortgage alone (as in the first above scenario), the creditor saw no reason to exclude the home.
Much higher is the chance that the creditor "wakes up" and tries to restore his losses through enforcement. On a forthcoming play I will be discussing why paying your second mortgage or HELOC can be your best choice to keep your home and get away from the guilt. Read more about mortgages & home buying: