When Can Second Mortgagees Recover Payments Through Foreclosure?

 Posted on October 26, 2021 in Mortgage Foreclosure

Mortgage lenders have options for ensuring they receive the amount owed from homeowners, and when a person defaults on their mortgage payments, a lender can initiate foreclosure proceedings. However, second mortgagees may be unsure about their options in these cases, including whether they can collect payment following a short sale or another situation where the sale of a home will not fully cover the amount owed. By working with an attorney who understands laws that affect debt collection, second mortgagees can determine their best options for receiving payments following a foreclosure.

Foreclosure and Subordinate Loans

In a second or subsequent mortgage or home equity line of credit (HELOC), a borrower will be taking out a loan against the equity they own in their home. Most of the time, these loans are considered to be subordinate loans, and the first mortgage will have the priority claim to the property. If a homeowner defaults on their first mortgage, the lender may foreclose on the home. Second mortgagees may also initiate foreclosure proceedings if the homeowner has remained current on their first mortgage but has defaulted on subordinate loans.

During the foreclosure process, a home will be sold, and the proceeds of the sale will be used to pay off the amount owed by the homeowner. A first mortgage will have priority, and second mortgagees will only receive payments if there is enough money left over after paying off the first mortgage. In short sales or other situations where a home is sold for less than what is owed on a first mortgage or any subsequent mortgages, a second mortgagee may not receive enough to fully cover the amount that is owed.

If a second mortgagee is unable to receive full payment of debts in a foreclosure sale, it may be able to pursue a deficiency judgment against the homeowner. This will allow the lender to recover some or all of what is owed. Depending on the circumstances of the case, a second mortgagee may be able to put a wage garnishment order in place, or a court may issue a levy against a debtor’s bank account, allowing funds to be seized to pay off the amount owed. A lender may also be able to place liens on other property owned by the debtor.

Contact Our Chicago Debt Collection Attorneys for Second Mortgagees

At Dimand Walinski Law Offices, P.C., we provide representation for second mortgagees and other lenders, and we work to find innovative solutions to allow them to collect debts that are owed. We can provide representation during the foreclosure process, when pursuing a deficiency judgment, or in cases where a debtor has filed for bankruptcy. Contact our Chicago second mortgage foreclosure lawyers at 312-704-0771 to learn how we can help you collect debts successfully.

Sources:

https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=073500050K15-1106

https://www.ilga.gov/legislation/ilcs/documents/073500050K15-1404.htm

https://homeguides.sfgate.com/can-second-mortgages-foreclose-property-2233.html