What happens to my second mortgage obligation if my first mortgage lender forecloses?

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What happens to my second mortgage obligation if my first mortgage lender forecloses?

If a house was foreclosed and it had a 80/20 loan on it ie both loans from same company and closed on same day. Can a third party attempt to claim the amount owed on the 2nd loan? The 2nd loan was used in purchasing the house.

Asked on February 28, 2012 under Real Estate Law, Georgia

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If when the home is sold (e.g. at foreclosure auction), it brings in sufficient proceeds to pay off the first mortgage, which has priority over the second, then any remaining proceeds from the sale will be applied to amounts owed on the 2nd mortgage. If the second mortgage is paid off, then it is clearly eliminated as a concern. However, if the second mortgage is not paid off by the foreclosure, which is very likely, given that the first mortgage must be paid in full before anything is applied to the second, you will be in default of your obligations under the second mortgage, and the lender (or anyone taking assignment of the loan from the lender) may sue you for the money you owe.


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