Many homeowners who are currently in distress have a second mortgage on their home. This is because most borrowers had refinanced or had to obtain this additional mortgage because they did not have enough to secure the home without it over the last 1-5 years. Some individuals may find it difficult to juggle both mortgages for the entire term of the mortgages, especially now during these struggling times. More borrowers than ever are failing to repay their mortgages due to financial hardships they have experienced. A lot of times it is the second mortgage the homeowner chooses to stop payments on once their budget becomes tight.
This typically happens because the majority of people feel that if they continue to make payments on their first mortgage ,that their home cannot be foreclosed on by the 2nd lien holder. This is false!
Second mortgage holders can begin foreclosure if the homeowner fails to repay the loan as agreed. The fact that the first mortgage is current will not factor into the second mortgage holders decision. These mortgages are secured and use the property as collateral. If the borrower fails to pay the loan, it will be paid back by the sale of the property.
Any lienholder can try and force the property into foreclosure, but it is typically the first mortgage that will pursue this action. This is mainly because if the second is to pursue foreclosure the chances of them receiving any of the proceeds is not very likely. One reason for this is the declining real estate market and the amount home values have dropped the past couple of years. This has left about one out of every four homeowners owing more on their mortgage than their home is worth. This terms is commonly referred to has being under water.
The fact that homes prices have declined such as significant amount over the past couple of years, makes it much more unlikely for the second mortgage holder to pursue foreclosure. But do not count your chickens just yet, there is still a chance they will do so even if they get nothing from the sale.
However, due to our economic crisis and the amount of losses these lenders are enduring, you may be able to get a loan modification to lower your monthly payments or even settle the debt before they even consider foreclosure. If a second mortgage holder is going to get nothing from the sale than they may be willing to lower your monthly payments or even settle to debt for a about ten to twenty percent of the outstanding balance. Both of these routes are great ways to avoid foreclosure and stay in your home.
If you feel that you are not going to be able to afford your second mortgage then pick up the phone and call your lender today. Before getting threatened with foreclosure attempt to work something out so you can limit the damages on your credit score. Once you fall behind on your payments your credit score will be affected so try and work something out before it goes this far. However, for most it will be almost impossible to do so because lenders generally only deal with people who are in serious need of help (aka delinquent on their mortgage).