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What happens after a foreclosure if money is still owed to a 2ND mortgage?
How do they get paid if property sold for less than what is owed?
By
ottfive
Posted on
03/26/08 Total Answers
2
Answers-
I believe they get rocked, I recall reading an article about how an outside investor can negotiate with the bank to buy a lot of these 2nd mortgages for pennies on the dollar in the hopes that a few of the distressed homeowners (who will owe the investor and can negotiate with him instead of a bank) will right themselves. The investor makes thousands, some homeowners avoid bankruptcy/foreclosure, and the bank who made the bad loan gets screwed.
Answer by :
006 On Date
2008-03-26 23:59:07
The lender holding the 2nd mortgage can get a deficiency judgement against the owner. In the past, it was more common to give the owner a 1099 for the deficient amount which will count the loss as income to the homeowner. There were advantages for the lender to do that rather than spending more money to go to court and get the deficiency judgement. Recently though, President Bush signed into law a temporary moritorium that prevents lenders from issuing the 1099. I suspect more lenders will get the deficiency judgements because of this.
Be aware that prior to any foreclosure auction, all lien holders are notified of a foreclosure. Depending on who is foreclosing, the lender holding the 2nd may buy the first mortgage, the lender of the 1st may buy the 2nd, the 2nd could make the payments on the 1st to stall a foreclosure, etc. What actions taken by each lien holder depends on many things including who filed the foreclosure, the value of the property and the amounts owed.
Hope this helps.
Elliot Lau
