| The dirty little secret that the servicers of second | | | | costs of selling the property and paying off the first. |
| mortgages and equity loans don't want you to know is | | | | These expenses many times add up to more than |
| that the borrower holds most of the leverage when | | | | they are owed in total on the second mortgage or |
| they fall behind on the monthly payments. These type | | | | equity loan. This is why the borrower has much more |
| of loans always fall into place behind the first | | | | leverage with a second than with the first. If the value |
| mortgage. This means that should the home be lost to | | | | no longer remains in the home, what is protecting the |
| foreclosure or sold through short sale, the second | | | | second? Nothing, collection is basically no more |
| mortgage won't get a dime until the first mortgage is | | | | enforceable than a credit card debt. |
| satisfied in full. With the recent and sudden drop in real | | | | The trend over the past 12-18 months has been that |
| estate values nationwide, this means that most of the | | | | the lender of a second mortgage will only hold a loan |
| time, a second mortgage is wiped out or sold off as a | | | | until it goes to about six months behind. They have |
| total loss in cases of foreclosure or short sale. | | | | been treating these debts as a "charge off" at that |
| Many people will contact their second mortgage when | | | | point. This means that the lender has declared the debt |
| they initially fall behind on payments are shocked to | | | | as uncollectable and the debt is no longer considered |
| find that the lender will offer a loan modification very | | | | an asset within the bank. The debt is usually sold off to |
| quickly and easily. These modifications will generally | | | | a debt buyer for a fraction of what the principle |
| lower the payments for a period of time to allow the | | | | balance is. If a second mortgage is "charged off" the |
| borrower to "get back on their feet". In reality, these | | | | debt is no longer attached to the property in most |
| plans are usually far from the best they can offer and | | | | cases and the new debt buyer will not have the right |
| many times don't provide any kind of long term relief. | | | | to foreclose anymore. They still have the right to try to |
| Most people accept these plans gratefully and begin | | | | collect the balance and the debt will still appear on the |
| making payments again not realizing that they just | | | | borrowers credit report until it is either "satisfied in full" |
| settled for less than they need to and did not | | | | or "settled" for less than the full balance. Settlements |
| successfully capitalize on their position of leverage. | | | | on a second mortgage or equity loan can go as low |
| A second mortgage does have the ability to foreclose | | | | as 10% and offer the borrower the opportunity to |
| on a property if the payments go beyond ninety days | | | | save a huge amount of money when compared to |
| behind. This "right to foreclose" was written into the | | | | the cost of remaining in the loan and paying month to |
| original loan documents; however the only reason they | | | | month until the debt is paid under the lenders terms. |
| would ever foreclose is if the property has a sizable | | | | If a borrower is having trouble keeping up with |
| amount of equity and the foreclosure would make | | | | payments on a second mortgage or equity loan they |
| financial sense. It would need to give them the ability to | | | | should certainly look at all options to modify the loan |
| not only clear the first, but retain a profit for | | | | and save money. Many people are faced with the |
| themselves. In fact if the second mortgage foreclosed | | | | harsh reality that their home is worth more than they |
| they would be doing a huge favor for the first | | | | owe. Modifying or settling their second mortgage may |
| mortgage. The second would now own the property | | | | very well be the best opportunity to reduce the |
| and have to keep everything current, the property | | | | principle balance owed and get the property "back |
| taxes (plus any back taxes), the heat (so the pipes | | | | above water". |
| don't freeze), repairs, and they would also shoulder the | | | | |