What happens when you default on a second mortgage?

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What happens when you default on a second mortgage?

I have a house that has a first and second mortgage on it. The home is starting to go through the foreclosure process. I recently received a letter from the second mortgage saying soon they will start to take action. Will the second mortgage go into foreclosure as well or will they take me to court. Not sure how foreclosure works when you have a second mortgage. The first mortgage has about $120,000 left and $53,000 on second mortgage; the market value went down to about $150,000 on the house.

Asked on November 23, 2015 under Real Estate Law, Pennsylvania

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

Either mortgagee (i.e. lender) can foreclose when you default on their loan; if you default on more than one loan, more than mortgagee can foreclose--and typically will foreclose, to protect its interests. However, not all the mortgagees may be paid through the foreclosure process; the first mortgage has priority, and therefore the first mortgage must be paid in full by whatever is realized from the foreclosure sale/auction of the property before the second mortgage receives anything. In the situation you describe, and ignoring the costs and fees of foreclosure (i.e. assuming the full equity of your house goes to the mortgages), when the home is foreclosed upon, if the home is worth $150k, the first mortgage is $120k and the second is $53k, the first mortgage will be paid in full if the house is sold/auctioned for the full $150k, which will leave $33k to partially pay the second mortgage.


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