Q. Please help me with my lenders! Thank you for your website, LoanSafe.org. I’ve been lurking here for a very long time and I’ve seen that you guys have helped a lot of struggling homeowners the past few years. I’m a little nervous to join the forum so I thought I would just e-mail you my question.
What I would like to know is, “if I’m behind on my second or third mortgage, will they take my home?”
A. This is a good question because many people are unaware what their second or their third mortgage can do during the foreclosure process. After all, they are in second and third position behind your first mortgage. What this means in layman’s terms, is that when your home is either foreclosed on or you perform a short sale, the first mortgage gets to collect any proceeds from the sale of your home prior to any other lien holder. The second mortgage is next in line to collect and then the third mortgage gets collect third.
In a perfect real estate market, where home values are strong and no borrower is underwater on their mortgage, owning these second or third mortgages was not so bad of a proposition for investors. But this market is a far from perfect, with most mortgage holders underwater across the country.
What is happening with these homes that have multiple mortgages is that they’re going underwater on value. This is when you owe more than your property is worth. When these homes are sold at foreclosure auction, sometimes only the first lien holder can collect monies from the sale. The second and third lien holders are often left with nothing. So, they have a lot to lose and they know this. They have to recoup as much money as they can without spending any more money trying to collect on these debts.
So, one would think that if they were negotiating with their second or third lender, that they would be in the driver’s seat when it comes to striking a deal. In the past that was the case. But now, we’re seeing more of the second and third mortgages play hardball with borrowers who are looking to either modify their loans or negotiate a short payoff.
- It appears that they’ve all got together and decided that the best route to deal with borrowers is to sell them off into the markets to investors. A game of mortgage hot potato.
We’re seeing a new trend in our forum, where the second and third loans are sold to investors and then later charged off by the lenders. Homeowners are reporting that their credit reports state that their second mortgages and sometimes third have been charged off. Many of these people don’t know what is gonna happen in the future with these charged off mortgages and they’re looking for answers.
When these loans are charged by lenders and sold, can these investors then proceed to foreclose on the home? Or, are they just going to go after the borrowers personally?
The facts are many of you are pioneers on the foreclosure front. What happens to you later, will answer many of these questions we have now.