What happens if a home forecloses and the auction only pays off the first mortgage and not the second?

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Will the second mortgage holders come after you or be able to put something (other than a foreclosure) on your credit like a judgement? Would they be ale to garnish wages or do anything crazy like that in the future? The reason for two loans was a first and second (100% loan) was used to purchase the home. The value dropped and the foreclosure auction will only be enough to cover the first mortgage and part of the second. If you could site any websites that show these types of laws it would be appreciated. Thanks.
Oh and real examples would be great. I’ve heard many people say yes they can come after you, but of those that have actually been foreclosed on I’ve yet to hear one of them tell me an actual horror story. This could be because many second lien holders use fear to get some people to pay them money and salvage some of their loss.
coragryph, keep in mind the 2nd was used as purchase money, so it was not a 2nd mortgage that was “taken out”. Also, have you actually heard of this happen or only studied it? Thats what i’m finding out, that most lenders don’t go through with that, as they end up getting nothing after spending all the money to legally fight it and most individuals could file BK to avoid it.

  1. Reply
    May 13, 2011 at 11:54 pm

    The person who had taken out the second mortgage remains liable for any unpaid debt, and can be sued in civil court to attach other assets owned to pay off that debt.

    If the person was sued, and found liable for the debt (which they almost certainly would), then the court could order assets or bank accounts seized, wages garnished, or other forms of restitution.

  2. Reply
    May 14, 2011 at 12:27 am

    It is the same as a car that gets repossessed. If they take your house and sell it and the amount of money they get from the sale does not cover all of the debt then the original debtee (the person who signed for the loan) will be responsible for any amount of money still owed. Yes they can garnish your wages, yes they can file on your credit. The only way to file a judgment on your credit is to take you to court. The best thing for you to do to save your credit and any chance of owning a home in the future is to make some type of payment arrangements that you can afford and stick with them. Be responsible and pay your debt. GOOD LUCK.

  3. Reply
    May 14, 2011 at 1:19 am

    What you are talking about is what was called an “upside down mortgage” where the mortgage debt is worth more than the house, which is decreasing in value.
    Say you have a house worth $ 20k, and one mortgage for $ 25 and a second for $ 10K.
    When the mortgages are foreclosed, the first mortgage gets all the $ 20K, and can sue the homeowner for a “deficiency judgment” for the last $ 5k that remains on the mortgage. The second mortgage holder can sue the homeowner for their $ 10k claim, and get a civil judgment, but it will not be attached to anything (meaning there is nothing they can take or foreclose to get their money) but they can garnish income.

    That’s how it would be in your example. The first mortgage holder gets their money and goes away. the 2nd gets part, and sues you for a deficiency judgment for the remaining money.
    what it sounds like is you need a bankrupcty lawyer, if you want to keep the house. good luck

    If you want to know if they will actually bother, yes, because civil judgments last for 10 years (at least in NYS) and you can renew those babies. Meaning, they can wait until you have the money, no skin off their nose. Also, since they changed the bankruptcy laws, its not as easy as it was to get rid of debt as it was last year. There’s much less protection for debtors, now.

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