What happens to the loan guarantor of a 2nd mortgage, if the1st mortgage is going into foreclosure and/or sold in short sale?

UPDATED: Sep 6, 2011

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What happens to the loan guarantor of a 2nd mortgage, if the1st mortgage is going into foreclosure and/or sold in short sale?

My wife and I are loan guarantors for my in-laws 2nd mortgage. The first mortgage went into foreclosure proceedings an dis going through a short sale? The 2nd lien is being paid on time, what do my wife and I do once this property forecloses or is sold as a short sale?

Asked on September 6, 2011 under Real Estate Law, New Jersey


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

If you are a guarantor on the second mortgage (trust deed) on a home for your in laws, you are ultimately responsible for paying the full amount of this loan if they default upon it. The problem is that if the first mortgage secured by the property has gone into foreclosure, the second mortage will be wiped out in the foreclosure.

If the second mortgage is wiped out in a foreclosure, it will still need to be paid in full and you and your wife may ultimately be responsible for its payment.

If there is a short sale and the second mortgage holder receives some moneys from the sale, there is the possibility that the second mortgage holder's receipt of any moneys may be considered a payment in full is agreed to in a written document.

At this time you should consult with an experienced real estate attorney regarding your situation.

Good luck.


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