Many home owners need a second or even a third mortgage in order to cover the price of their home or for repairs and additions. Second mortgages are usually taken out to cover the high price of the home when a single mortgage just doesn’t cut it. Other types of loans, like a home equity loan, are generally taken out when the home needs repairs or if the owner wants to make an addition to the property, like a garage or a pool.
Home owners can also have liens on their properties. When you are sued, for example by a credit card company, for a sum of money and you lose the battle in court, the winning party can file a judgment lien, which will be attached to your property. This article will describe what happens to second mortgages and liens if your home goes into foreclosure.
What is a Second Mortgage and a Lien?
Second mortgages are pretty much just like any other mortgage loan, but they have some advantages and disadvantages of their own. Typically, borrowers will take out a second mortgage in the form of a home equity loan by tapping into home equity. This type of loan is actually a line of credit which is used much like a credit card. The borrower withdraws the amount that he or she needs, which will have to be paid back with interest. Home equity loans are usually used by home owners who wish to make repairs or improvements to their homes.
A lien is created and attached to your property when you lose a lawsuit that involves a sum of money. The property lien gives the creditor the right to repossess your assets in order to satisfy your debt. A judgment lien will prevent you from selling your property until it is removed.
The priority of a lien is determined by the date when it was recorded. Usually, first mortgages are considered first lien, second mortgages are considered second lien, and judgment liens come in third position.
What Happens After Foreclosure?
When a home is foreclosed on, it is important to know who gets paid first. Normally, first mortgages get paid off first after foreclosure. After the foreclosing lender receives his money, the remaining funds will be used to pay off second mortgages and any liens on the property. If the property doesn’t sell for more than what the mortgage loan is worth, then the foreclosing lender gets all the money, and any second mortgages or liens will be wiped out, but the debt won’t be eliminated.
A common mistake that many people make is thinking that second mortgages or liens are paid off once the property is foreclosed on, even if the selling price wasn’t high enough to satisfy these debts. After a foreclosure, the second mortgage and liens are removed from the property title, but the previous owner will still have to pay his or her debt.
The lender that granted you the second mortgage can sue you in order to try to recover his money. However, this will only happen if the debt wasn’t paid off after the foreclosure. Unfortunately, lenders for second mortgages usually don’t receive enough to satisfy your debt after foreclosure, so there is a strong chance that they will sue you. Liens have also been wiped out, but the creditor will still go after you in order to recover the money. Liens that were previously attached to the foreclosed property can still be attached to other real estate property that you own or will own in the future.
Having a second mortgage or lien can create problems even after foreclosure, if they are not paid off. So your best choice is to make sure that you protect yourself by doing some research beforehand, so you will know what to expect if your home is in danger of being foreclosed and you have a second mortgage and liens on it.