If your second mortgage payments are not paid on time, the second Trust Deed lender can make the decision of foreclosing. But what happens to your first mortgage if you are still current on it?
First its important to understand what is a second mortgage trust deed.
Second mortgages are loans tied to a property that are second or subordinate to the original first loan and will receive pay off only after the original mortgage has been paid off.
It can be a standard fixed payment loan, or a line of credit that you can pull from. Home Equity Lines of Credit (“HELOC”) loans are an example of secondary mortgages if they are subordinate to the first. Being riskier to lenders due to the fact that secondary loans only get paid after the first, the interest rate on a second mortgage is usually higher than the first.
Second mortgages are commonly used to pay for large expenditures such as college tuition fees, home remodeling, or the purchase of a car; there are some cases in which homeowners use a second mortgage to consolidate other debts at a lower rate.
What happens if you stop paying your second mortgage?
After giving you a certain amount of time to catch up on your payments, the second mortgage lender will review the value of your home to see how much equity is in your house.
Since the first mortgage is the original one, it tops the list of priorities and has to be paid first entirely with the money from the foreclosure. Whatever is left pays the second. If there is enough equity to cover the first mortgage and the second mortgage, the second mortgage lender will initiate the foreclosure process. The second lender also has to consider the cost and fees associated with foreclosure.
If there is not enough equity for a foreclosure to cover at least most of the second trust deed loan, the lender will consider other options. One option is to keep the loan in place and accrue the payments with late fees and hope that eventually the property’s value will increase to cover the second mortgage. Another option is the second mortgage lender will sue the homeowner, and place a writ on their income.
The best way to avoid second mortgage foreclosure
The first tip will be not to fall behind with your payments; the second mortgage lenders have higher rates so your attention should be equally distributed to both loans. If you have already fallen behind, the bank representative may give you a chance and discuss a forbearance plan to resolve the missed payment and get back on track. They want to avoid costly legal routes including suing or foreclosure.
Many lenders will do a loan modification program that can help you make your payments more affordable. All these procedures must be done in time because if you receive the 30, 60 or 90-day notice your chances of getting more credit or reprogramming options are lost.