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Can a 2nd position co. start foreclosure proceedings?


mj11
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Can Homecomings financial which has a second position on a house initiate a foreclosure? It is not a heloc. The last 3 payments were missed and they said if one is not made by the 30th they will be putting a sticker on the door soon. 1st note is $254k 2nd is $33k, house is worth $115k.

Thanks!

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http://www.bankrate.com/bosre/news/DrDon/20060206a1.asp

Bad news. The second mortgage lender can foreclose on the property even if the first mortgage is in good standing with its lender. A second mortgage is a secured loan backed by the value of the home, just like the first mortgage. The difference is that the first mortgage lender is paid ahead of the second mortgage lender in the event of a foreclosure. That's why it's called a second mortgage.

If the second mortgage lender initiates foreclosure proceedings, the first mortgage lender may step up and buy out the second's interest in the property. Conversely, the second could negotiate to buy the first mortgage. As long as the home's appraised value exceeds the combined loan balances, there's not a lot of additional risk, and there is a real benefit, for one lender to control both mortgages.

If you thought you were safe by keeping up with the payments on the first mortgage while missing payments on the second, you're not. If the second has threatened or initiated foreclosure proceedings, you need to find a good real estate attorney that will help you manage this process and allow you to protect or realize the equity you have in the property.

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You are upside down in your mortgages. Your second is wholy unsecured as the value of your property is $115k and the first is $254k. The second is $33k, so in order to 'protect' the second the second would have to do a buyout of the first. Financially it does not make any sense to spend another $254k to protect the $33k.

However, we know that banks/lenders do not always do what is financially prudent!:shock:

What is more likely to happen is the second can charge off the loan (but the lien still stays and accures interest). Then the loan can be turned over to a CA for collection. JMHO.

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You are upside down in your mortgages. Your second is wholy unsecured as the value of your property is $115k and the first is $254k. The second is $33k, so in order to 'protect' the second the second would have to do a buyout of the first. Financially it does not make any sense to spend another $254k to protect the $33k.

However, we know that banks/lenders do not always do what is financially prudent!:shock:

What is more likely to happen is the second can charge off the loan (but the lien still stays and accures interest). Then the loan can be turned over to a CA for collection. JMHO.

Agree 100%. Possible for the 2nd to foreclose but not probable. In all likelihood, they'll send it to a CA who'll hound you.

Just out of curiosity, how is it possible for someone to owe $287k on a home worth $115k? You'd have to have put down close to nothing, have a highly negative amortization loan, and been in the worse housing market in the nation. Ouch...:(

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JQ26 - we are seeing it all over here in S Fl - the loans were naturally taken out when the housing market was at or near its peak (2005, 2006) and the market has taken a real dive now. It is not unusual for the loans to be $300k and the house now worth $150k. Or more commonly, the house is worth $400k and the loans are $600k+ This is without a neg am loan. We just happen to be in an area of the country that is hit particularly hard - right along with Arizona, California, and Nevada.

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Hello there

2nd mortgages can really be a pain in the butt especially since they tend to have higher interest rates. Their is a bright side however if u are having problems with a second mortgage.

Given today's current economic condition the lenders are becoming more and more aggressive with loan modifications. It is a s easy as it will:D ever probably be to combine that 2nd mortgage with the first and reduce the interest rate on the 2nd and in many cases the first as well.

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This one takes the cake. Down 70%?

Yes. We have had a severe (read 'drop off the cliff') type downturn.

We are seeing housing prices we have not seen in many years. We are seeing condo's well under $100k (some instances $40-$50k) and that is not for age restricted places either. For a long time you could not buy a house for less than $300k in Palm Beach Cty - now you can pick one up for less than half. The only difficulty is, people have a hard time qualifing because the taxes are still in the $5000 or more range! So the house is affordable and the taxes, insurance and maint fee still puts it out of range for many first time home buyers! What a mess! :shock:

Sorry - guess this is a thread jack.

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I would like to share an insight as to a second mortgage holder's options in CA when there is not enough equity to secure the loan. True are those posts in reference to their ability to foreclose; however selling the note and right to collect on the original balance is more and more common. It comes down to the core concept of "a bird in the hand is worth 2 in the bush" for the lender. Selling it off to a collection company enables the original lender to get their "bird," though it is most likely a Finch as opposed to the original falcon that they gave to the homeowner. Beware because that Finch may grow into a vulture.

Once the second mortgage (Finch) is sold (for 2.5-5% of the initial second mortgage), the collection company will contact the borrower (after some time) and inform them of a new entity (vulture) trying to collect the debt. People who are looking into a short sale option need to be very careful of this! When the second is sold, it literally disappears from the Customer Service computer screen, and as far as they know you only have a first mortgage. Though when the final numbers are worked up, there will be a few extra thousand dollars (i.e. 2K for a 70K loan), and this is the amount that your initial lender sold to a collection agency. So the danger in this is that even if you close on the short sale, you may be contacted by this collection agency in a few months, and they will be trying to collect the full amount (of the second) even after your short sale is done and done.

Therefore, the collection agency now has the ability to collect on the debt as a secured debt or as an unsecured debt.

Key thing to remember: A home owner who goes a short sale route, needs to have his realtor / negotiator determine if the second will be part of the deal... this means they will need to track down who bought the 2nd loan, and make an offer on a settlement and present this to the 1st mortgage lender who also need to put their stamp of approval on it (because the more money that the new second holder gets, the less the first gets). They (the collection company) usually want 10%, and negotiation with the new second mortgage holder may take time, but this is time well spent.

What a great deal for the company who bought the debt, they pay 2.5-5% and either get 10% at the short sale, or attempt to get a heck of a lot more from the home owner going after as much as they can through unsecured collection efforts.

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Key thing to remember: A home owner who goes a short sale route, needs to have his realtor / negotiator determine if the second will be part of the deal...
Wait a second- how can you do a short sale if all lienholders don't agree? That second mortgage is subordinated but still valid. How can any title transfer without the second mortgage holders blessing? That subverts the entire point of holding a lien in the first place.
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If I am not mistaken (and I surely will do some more research) when the original lien holder sells the second to a collection agency, that collection agency becomes the new lien holder, and they have the option to go after the debt as a secured debt against the house, or as an unsecured debt against the borrower. The property can still be sold if the new collection agency chooses to pursue the debt as an unsecured debt. With homes that are severely upside down, it may make more sense for the collector to try to try and collect from the individual. I will have to check on how the title is transferred, as this is a good point, anyone else welcome to help here as well. The individual should always try to use the short sale to negotiate and settle the collection of a second by including it in the payoff. And on that note, there are many other elements that can be included in a short sale if they (seller) can get the buyer to agree. I will post more on this later.

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Here in S Fl you can not sell the house without clearing both the first and the second. In the case of a short sale, that means you have to negotiate with both the first and the second (and usually the mortgage insurance company too). If either one of the parties does not agree to the short sale - it does not happen, there is no closing. In fact, most of the time we also have to negotiate if there will be a note signed by the seller for part or all of the deficency - again, if there is no agreement, there is no closing.

No way can a house here close with just the first agreeing to the short sale and the second to be handled later as there is a lien from both parties on the property.

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  • 2 weeks later...
Can Homecomings financial which has a second position on a house initiate a foreclosure? It is not a heloc. The last 3 payments were missed and they said if one is not made by the 30th they will be putting a sticker on the door soon. 1st note is $254k 2nd is $33k, house is worth $115k.

Thanks!

( our situation)

we sold home and like dumb a** we carried the second note..of course they never paid, was told,

we must pay /assume 1st to collect or foreclose as 1st Always has 1st rights( they have to agree to suit( wanna make sure they get paid too)

, waited.. 1st started foreclosure..Short sale, meaning they HAD to get our Ok to sell..( gives you little control here. got about 5 thousand of the note AND you have to waive your right to collect)

*Good side buyer really wanted the home and was willing to pay us 5thousand, for the second note..

*Down side for the second, is if home goes to Auction second usually gets nothing as they are 2nd in getting anything( 1st gets paid then whats left over 2nd gets Usually Nada)

* Leason Learned , we lost 21+ thousand on that one..

If your in Good standing on your 1st maybe they will buy your second,, they can even bargin with your second on the amount( as second maybe willing to "short sell" to your first , rather than risking loosing all in a foreclosure..good luck

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Just a question: I don't understand the last comment:

If your in Good standing on your 1st maybe they will buy your second,, they can even bargin with your second on the amount( as second maybe willing to "short sell" to your first , rather than risking loosing all in a foreclosure

If you are in good standing on the first - and behind on your second - why would the first 'buy out' the second?

1) the first mortgage does nothing if they are current - no foreclosure action

2) if the second attempts to foreclose, they have a first in front and can not get clear title without buying out the first

3) if the first is in arrears and forecloses, all they have to do is finish the process and not pay the second anything because foreclosure is getting rid of all jr liens (not priority liens like taxes - just jr liens like HELOCS/seconds etc)

Maybe I am not understanding the comment. Please clarify.

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Just a question: I don't understand the last comment:

If your in Good standing on your 1st maybe they will buy your second,, they can even bargin with your second on the amount( as second maybe willing to "short sell" to your first , rather than risking loosing all in a foreclosure

If you are in good standing on the first - and behind on your second - why would the first 'buy out' the second?

1) the first mortgage does nothing if they are current - no foreclosure action

2) if the second attempts to foreclose, they have a first in front and can not get clear title without buying out the first

3) if the first is in arrears and forecloses, all they have to do is finish the process and not pay the second anything because foreclosure is getting rid of all jr liens (not priority liens like taxes - just jr liens like HELOCS/seconds etc)

Maybe I am not understanding the comment. Please clarify.

sometimes your first will 'buy" a second then refi both into one loan esp if your in good standing with the 1st,

1st may offer to buy out the second at a lower rate( say they owe 10000 and 1st offers 5000) , second gets some money , "somewhat" safeguards against buyer not paying thier 1st and loosing all( many who dont pay the smaller second also has higher chance of defaulting on thier 1st)

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  • 4 months later...
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