what happens in foreclosure when you have two mortgages

I apologize for this being a little complicated but bear with me. What happens in foreclosure when you have two mortgages — (find out more by getting my exclusive 25 page special report and my exclusive emails on deed in lieu of foreclosure, how to stop foreclosure, sell your home in 9 days even when there are no buyers, and more.)

In a foreclosure the first step is usually the filing of a notice of default. Depending on your state, a slightly different foreclosure process is followed.

It gets a little complicated if you have two (or more) loans on the property. Let’s say you have a first mortgage and a second mortgage, perhaps a home equity loan or equity line.

The foreclosure is generally done by the senior lender. That means the first mortgage holder will often file the notice of default. Then, if the second mortgage is also delinquent, the second mortgage holder will often make up the late payments to the first mortgage holder. Then the second mortgage holder, the junior mortgage, will foreclose. They will make the payments on the senior loan during the foreclosure process.

Now, if there is a trustee or sherriff’s sale, the second mortgage holder will auction the house. But whoever gets the house at the sale will get the house complete with a first mortgage on it.

Note this, however. If there isn’t much or any equity, the second mortgage holder won’t bother making the payments to the first mortgage holder. Both the second mortgage holder and the first may have a foreclosure process going on. But the second mortgage holder won’t bother at this point because they figure, why spend the money? The first mortgage holder will end up with the house back after the trustee sale and the second mortgage holder will be wiped out.

At this point, the second mortgage holder has nothing. The first mortgage holder has your house. And depending upon the state laws and your situation, one or both may pursue you for their financial loss.