Since the housing bubble burst over a decade ago, the thought of foreclosure has become a near-constant concern for homeowners across the country. Those dealing with financial struggles may be worried that late or missed mortgage payments will lead to them losing their homes. For those who have refinanced or obtained a second mortgage on their homes, things are often uncertain, especially as it pertains to what happens if they default on a second or additional mortgage. If you are in such a situation, a qualified foreclosure defense lawyer can help you understand your available options.
What You Should Know About Second Mortgages
Any loan that qualifies as a mortgage is considered a secured debt. This means the loan is secured by collateral, and in the case of a mortgage loan, the collateral is the home itself. If you default on your mortgage, the lender can foreclose on the home and take the house. This applies to the mortgage that allowed you to buy the home as well as any subsequent mortgages. It also applies to home equity loans taken out with the home as collateral.
In the event of a foreclosure on a home with multiple mortgages or home equity loans, the initial mortgage takes precedence. Any subsequent lenders will only get paid if the sale of the home nets enough proceeds to satisfy the initial mortgage and there is money left to distribute.
If you are “underwater” on your home, which means you own more on your mortgages than the home is currently worth, your subsequent lenders might not choose to foreclose due to the likelihood of not recouping enough. Instead, they might look at other alternatives for seeking repayment, such as filing a non-foreclosure civil lawsuit against you for the amount you owe. While this might seem even more intimidating, lenders in such a situation are often open to negotiations regarding repayment and bringing the loan current, as doing so is likely to be financially advantageous for the lender.
For those who have defaulted on their second mortgage, Chapter 13 bankruptcy could be a viable option. Chapter 13 bankruptcy requires the debtor to set up a three- to five-year repayment plan for their debts. If the home in question is underwater, a second mortgage could be recategorized as an unsecured debt and added to the payment plan. Any eligible, unsecured debts remaining at the end of the payment plan will be discharged, which could help you get out from under the weight of multiple defaulted loans.
Call a Lake County Foreclosure Defense Lawyer
For more information about avoiding foreclosure on your home, contact an experienced Libertyville foreclosure defense attorney at Newland & Newland, LLP today. We will help you understand all of your available options and work with you to find the best possible resolution for your unique circumstances. Call 847-549-0000 for a free consultation and case review.