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second mortgage

A second mortgage typically refers to a secured loan (or mortgage) that is subordinate to another loan against the same property.

In real estate, a property can have multiple loans or liens against it. The loan which is registered with county or city registry first is called the first mortgage or first position trust deed . The lien registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are rarer.

Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage. Thus, second mortgages are riskier for lenders and generally come with a higher interest rate than first mortgages.

In most cases, a second mortgage takes the form of a home equity loan and the two are synonymous, from a financial standpoint. The difference in terminology is that a mortgage traditionally refers to the legal lien instrument, rather than the debt itself.

The term length of a second mortgage varies. Terms can last up to 30 years on second mortgages; however repayment may be required in as little as one year depending on the loan structure.

A second mortgage can occasionally be the catalyst to foreclosure when a homeowner defaults on their loan. The second lien holder then purchases the primary mortgage (which may still be in good standing) and then forecloses which leaves the homeowner losing their home to the 2nd mortgage lender.

Generally, when considering the application for a second mortgage, lenders will look for the following:

Significant equity in the first mortgage.
Low debt-to-income ratio.
High credit score
Solid employment history

Cowgirl Joe asked: "I'm going on 3 months past due now on my mortgage. In other words my home is going into forclosure. I have a second mortgage that I am gonig on 2 months past due. I'm unable to catch up on my home mortgage. I want to know should I continue to pay the second mortgage? I already know that forclosure is in the making. Don't the second mortgage get paid first when the home is sold. (Florida)"

Question posted courtesy of:

Vick Masterson replied: "No, The mortgage in first position gets paid first. First position is determined by the age of the loan. In this case, your first mortgage is in first position and gets paid off first. They are also the only one that can really foreclose on your home."

I_Love_McRedneck replied: "Vick is wrong - the 2nd mortgage holder CAN and WILL foreclose if the 1st one doesn't. An HOA can even foreclose if you're behind on their payments too.If they're going to foreclose and you don't have any plans on fighting it, why pay any mortgage? Save up for a deposit on an apartment.They'll pay the 1st mortgage first and then the 2nd. Any balance will result in a judgment, potential garnishment and leins, etc..."

David G replied: "Both of these people are right and wrong. The second WILL NOT foreclose if there is no equity in the home for their position. Bottom line if you can't afford the home go to and let them help. If I were you and there was no equity I would not pay the 2nd."

Pengy replied: "First that gets paid is anyone with liens on the houseSecond is your second mortgage holderThird or last if the original mortgage holder Why? Because they get the house, and have the most vested in it. They will then attempt to sell it, if it does not sell for the amount due (might even go to auction) you will either end up with a judgment against you for the difference, plus attorney fees, interest, additional taxes, etc, or they will write it off and send you a 1099 for the amount of the write off. (In a few states that is mandatory) Then you will be responsible for all the local, state, and federal taxes on that money, taxed at the rate as if it was a bonus which runs accumulative at around 30-36%. The Government taxing bodies have no restraint in either pay now, or we garnish your wages, tax returns etc with interest until it is paid off."

dpolak replied: "There is no point in continuing to pay on the second. Either mortgage can foreclose on your house. The first mortgage will get paid first so you want to keep them happy. There is very little chance the second will get anything from the sale of your house. If you can catch up on the first, you can probably make a deal with the second. They would rather get something than nothing."

Shawna Marie replied: "It sounds like you're in a pretty tough situation. I would continue making payments if you can, and try to keep the house OUT of foreclosure. Try and sell it before you give it back to the bank. A foreclosure is really bad for your credit, and you may also want to contact a bankruptcy attorney. If you need to sell quick, I may have a buyer in the Florida area on my buyers list. E-mail me info about the property."

buad0118 asked: "I am going to bid on a house at foreclosure and it has a 1st mortgage of $280K and a second of $70K. The lender on the first two mortgages is Decision One Mortgage. The lender at foreclosure is Countrywide. Does this mean that if I buy this house at foreclosure that I will own additional money to the second mortgage or just the first mortgage and back taxes?"

Question posted courtesy of:

Karen R replied: "If Countrywide is currently the 3rd mortgage and you buy it at their foreclosure sale you will be responsible for the 1st and 2nd mortages plus taxes."

girlwhoknowsitstrue replied: "BTW, there's a redemption period where the original owners can pay back what's owed and reclaim the house - can be anywhere from 6 months to 1 year - so don't be quick to dump money and updates into that house."

David D replied: "The answer may be here."

Searchlight Crusade replied: "When a senior lien forecloses, a junior lien is wiped out.So if the first mortgage holder forecloses, the second trust deed goes away. If the second forecloses, you'll still owe the first.Oftentimes, if a senior lien forecloses, the junior lien holder will send a representative to the auction to defend its interests by making sure the property goes for enough to pay the junior lien as well. Or they buy it themselves with the idea of reselling. Costs money, yes. But better than losing their whole investment."

El_Nimo replied: "Lets see if I get this right with my mystical magic 8 ball. You're buying a foreclosed house from the 3rd mortgage spot.Here's the only reason why you will buy the house from the 3rd position, the house is worth more than the 1st and 2nd mortgage and the 3rd mortgage together.I'll give some numbers to make it work or not work. Lets say the house is worth approximately $425,000. The 3rd mortgage is $10,000 and they are foreclosing. You can pick up the 3rd mortgage for say $5,000. This mean for you to own the house full and clear, at the time of the foreclosure sale you'll need $355,000 in cash. (technically $70,000 in equity).So the answer to your question is yes, if you buy this foreclosure, you'll need to pay the first and second mortgage off plus taxes."

Luna Sanguine asked: "I am going through a foreclosure on my first mortgage, what are my options with dealing with the second mortgage? Any legitimate websites with guides for dealing with the aftermath of foreclosure would also be appreciated."

Question posted courtesy of:

Real Estate Guy replied: "read this article. It should explain"

Biggie @ Arbor Mortgage replied: "You can continue to pay on the 2nd mortgage."

Gem replied: "If and when the bank sells your house, the amount of the sale will be applied as follows:First, the costs of repossession, foreclosure and the sale will be paid.Second, money will be applied to your outstanding balance Third, any other lienholders (2nd mortgage) will get money.In this market, the bank is going to be lucky to sell the house for enough money to pay the fees let alone the first mortgage.So, what will happen is that the 2nd mortgage holder will want you to pay and they very well could sue you and garnish your wages to get paid.Good luck."

Landlord replied: "They are not foreclosing and need to be repaid if the first does not have the money to pay them too after the foreclosure."

Highoff_ThaLIFE! replied: "Gem deserves best answer on this one she laid it on the table outright. i don't typically hear of the 2nd mortgage suing unless their private money but theyre entitled to sue. Hope I helped."Email me at maybe I can help!""

Jron asked: "What situation would an owner use a second mortgage. How does the bank and the owner benefit from it?"

Question posted courtesy of:

brotherlove@sbcglobal.net replied: "a second mortgage is when an owner has enough equity (market value of home less the first mortgage balance) in their home to take a second loan against the property. owners can benefit because it can give them a low interest loan to make home improvements or meet other financial needs.Lenders can benefit because the make money on the loan."

azohawk replied: "A second mortgage is using the equity in your house to leverage an additional mortgage. Some call it a home equity loan, although technically slightly different. It is totally different than a refi.A second mortgage usually has a higher interest rate than a first mortgage and typically has a shorter payback period (say 10 instead of 30 years).Some use a second mortgage when buying a house to avoid PMI. Other times a second mortgage is used to keep a family financially afloat (unexpected bills-i.e. medical).The bank benefits the same way they do from any other loan-interest payments. The owner benefits because it is a secured loan and thus generally has a lower interest rate when cash is needed."

Richi asked: "I am trying to help my client refi his first mortgage, but in order to do that I have to subordinate his second mortgage. The lender that I'm trying to sub is Chase. Any help would be greatly appreciated."

Question posted courtesy of:

Spock (rhp) replied: "you aren't going to accomplish that without Chase's written agreement.now, what would they get out of doing so?paying down some of the principle on the first?:-)"

bostonianinmo replied: "A second (or third, forth, etc.) mortgage is subordinate to a senior mortgage by definition. What exactly are you trying to do?"

WFR replied: "Umm, YOU are supposed to be the loan officer, shouldn't you know this? Why do you have clients and why are you doing their loans if you don't know how? Sorry, but that's mortgage 101. You asking that here is an embarassment to everyone."

racache_us replied: "Contact Chase and tell them what you are doing and the benefits of the refinance. As long as you are moving your client into a better situation they will allow a subordination. You will need them to sign a subordination agreement. have your processor work on this while you generate more loans."

Big Deal Maker replied: "A second mortgage is that a second. They will not relinquish there position. If you are going to refi the first mortgage there will be no problem unless chase has a problem with the additional mortgage payments from your client. They will protect there investment."

Lisa L replied: "I have successfully gotten subordination agreements from Chase. They have a form to fill out, will want $100 or $200, & more than likely will want a copy of your appraisal. It will depend on what your CLTV will be. And they do NOTHING quickly. I agree. This is basic mortgage 101."

Henry M. Paulson Jr. said he was backing away from buying troubled mortgage assets in favor of a second round of capital injections into financial institutions.

U.S. Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets. And just in time for holiday shopping, too! /s

Treasury Secretary Henry Paulson on Wednesday said he was backing away from buying troubled mortgage assets using a $700 billion bailout fund, instead favoring a second round of capital injections into financial institutions that would match private funds.

Information and referral regarding second mortgages and bankrupcy

Admittedly there are many reasons that we can think of that will warrant getting a home mortgage refinance loan. Of course, our main concern is to ensure that we still have the ownership of our home, and so have to have to refinance home mortgage. But still, we are having second thoughts about whether we need this refinance loan or not. So, how do

Second Mortgage Plate: The Lobster Taco at Rathbun's

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