Author Topic: Question about a 2nd mortgage in default. Need advice.  (Read 453 times)

moosejaw

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Question about a 2nd mortgage in default. Need advice.
« on: June 12, 2019, 09:46:34 AM »
Hey All,

I'll try to keep this short. My uncle is in poor health.  At some point, on the advice of someone, he stopped paying his second mortgage($60,000).  He was given advice that the second mortgage,. being the second lein on the property, cannot foreclose.

He is now getting threatening letters about foreclosure from the 2nd mortgage people/bank. He is current on his first mortgage.

While I am not the one who gave him the "do not pay the second as they have no claim over the frist mortgage", it has always been my understanding that there is some type of rule of order.  The second cannot supercede the first if current.

That being said, my father(his brother) is on the verge of making an emotional decision of paying off his second mortgage.  He has been told that once this is done, my uncle will be able to combine the first and second into one payment, but if all this has gone on I can't imagine a bank will be refinancing my uncle.  So it's all fishy.

I mainly follow Dave Ramsey's type of advice, e.g. Don't loan friends and family money unless you plan on just giving it to them.  However, 60k is a ton of money, and even if they were to settle the debt, I'd expect it to be a lot less.

Hoping someone might have knowledge on this and could give specific advice on debt settling, 2nd mortgages etc.

cchrissyy

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Re: Question about a 2nd mortgage in default. Need advice.
« Reply #1 on: June 12, 2019, 10:54:06 AM »
https://www.nolo.com/legal-encyclopedia/what-happens-if-you-default-second-mortgage.html

The 2nd mortgage absolutely can  foreclose on the house even though the 1st mortgage is being paid. 

I think what you are confusing is the priority order or who gets the money in a foreclosure sale, which is, the 1st mortgage gets paid off 1st from the proceeds. If the house is worth more than those 2 loans, then yes, it is worth it form the 2nd lender's point of view to foreclose. In some cases, the house isn't worth enough to bother, which can result in the 2nd mortgage company choosing not to act, or to delay, or to go ahead and foreclose but sue you for the price difference, depending on your state's law. Sometimes you hear that in the news, like during the housing crisis when property values fell.

Depending on how much is owed, and countless other factors in your uncle and his brother's lives and finances, it might be a wonderful thing that his brother is willing to come to the rescue here. Or a mistake. Not enough info to say : )