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Everything You Need to Know About Defaulting on a Second Mortgage

Everything You Need to Know About Defaulting on a Second Mortgage

It isn’t uncommon for a homeowner to take out more than one mortgage loan to cover all of the expenses. They can be used for the purchase of the home, home remodeling, paying off college loans, or going on a vacation. The problem is that if you default on the payments with your second mortgage, you may soon be facing a foreclosure. This may be initiated by the first or second lender depending on the value of your property.

What is a Second Mortgage?

Choosing to take out a second mortgage requires you to sign two different documents: a promissory note and a mortgage. The promissory notes is a promise in written form to pay back the loan, the mortgage gives the lender security interest in the property. Some of the types of second mortgages include home equity loans and home equity lines of credit (HELOCs).

Second mortgage does mean the mortgage is taken out after the first mortgage, but it also means that is has less priority. The mortgage with the highest priority is also the one that needs to be paid off first after foreclosure. After that is taken care of, the balance from the sale will go into the second mortgage debt.

  • Paying Mortgages

If you can’t keep up with the payments on your primary mortgage, you will find the lender will often choose to move to foreclosure. This is not always the case with a second mortgage. A West Chicago home loan modification attorney can help you understand your options if you are faced with foreclosure.

  • Homes with Equity

The value of the home is the biggest factor that a lender looks at before deciding to go to foreclosure. They want to be sure that the sale of the home will cover not only the first mortgage but the debt from the second, as well. If it turns out that this is possible, you can expect they will move into foreclosure.

  • Homes without Equity

When your home is worth less than the amount you own your lenders, this is referred to as negative equity. In this case, the second lender is unlikely to consider foreclosure. If you aren’t able to pay the first lender, who then initiates a foreclosure, you may find that the second lender will file a lawsuit to gain the unpaid amount from you.

  • Understand Your Situation

If you are facing foreclosure, you want a West Chicago home loan modification attorney to help you. At Covert & Covert Legal, LLP, we specialize in this type of situation. We understand that anyone can be in a complicated financial situation and want to help. To schedule a consultation you can reach us at 630-717-2783.

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