Many of the things I write about are from personal experiences. This is one of those times.
A second mortgage can indeed foreclose on the property even if the borrower is current on the first mortgage. It would be subject to the first mortgage, which is why it is rare, but it can happen.
I bought my home in 2007. It was right before the crash and the market was cooling, so the seller offers to hold a $75,000 second mortgage to sweeten the terms. The math worked. The seller was an attorney who was also an heir end executor of the estate selling the property. Technically, the second mortgage holder was a sibling of the executor attorney, and the terms were that we could pay interest only until the balloon payment was due in 3 years. The plan was that we would refinance and consolidate the first and second mortgages.
When the loan matured in 2010, the Great Recession was still going and we contacted the lienholder and explained that we could not refinance due to the beating we had taken with the housing crash. She could not have been kinder- she told us to keep making payments and let her know when we were in better shape. And continue the payments we did.
Sadly, she became ill and died a few years later. There was some confusion as to what to do next, but her executor, an ex husband, contacted me and said that the full loan was due and payable. He wasn’t wrong, technically. He just wasn’t in the loop on our arrangement with his ex wife.
He filed for foreclosure pretty quickly. This seemed perplexing to me, as I still owed well over $500,000 on the first mortgage and after expenses I didn’t see where the math would work for him. But he still pursued it through the courts, ringing up a hefty legal bill in the process.
As Yogi Berra said, “it gets late early out there.” It actually got to a point where an auction date was set. I hired an attorney and attempted to negotiate with the guy, and at one point someone inadvertently forwarded me an email where the second lienholder was expressing rather animated feelings about the complexities and red tape of the New York Court system. It also seemed clear that this was personal to him. Even if he didn’t get ahead by foreclosing instead of working something out with me, he was single minded.
I was thankfully able to pay him off without the foreclosure going through. I never pieced together what about this was so personal to the man that he would risk losing money, but the numbers didn’t make it feasible to foreclose. Luckily it was avoided and both parties were able to walk away without further negative developments. He was paid and I kept my house.
But the point here is that a second lienholder can foreclose, especially if the first mortgage is low enough for equity to be left over. The borrower generally is entitled to the surplus funds, so all the second lienholder can hope for is to be made whole.
Even if I realized any surplus, my preference was to keep my home, which I did. But lesson learned; a second mortgage can foreclose, and sometimes they do.
