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Home >> Lending >> Home Mortgage
Details about Mortgages
If a primary home mortgage is foreclosed, what is the recourse for people who hold the second mortgage on the property? Also, are all persons named on Deed of Trust of a primary mortgage automatically named on the promissory note of the second mortgage?
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 When a property is foreclosed upon, a public sale happens and a bid is made to the lender. The highest bid is often from the lender themselves. In this example the bank becomes the owner.
Any second and other lienholders have an opportunity to bid as well, but the liens in front of them would be paid first. The other liens are extinguished, so that the property can be transferred. That doesn't mean those debts are gone, just the collateral.
It is possible that a second lien loan would have different borrowers than a first lien loan. In most cases, if John and Jane owned a home, they could be on the first loan. If John borrowed a second loan, Jane would most likely be on the loan, or at least have signed the papers validating the lien. This allows a lender to have rights to the collateral, without making Jane responsible on the loan. In this case Jane would at least know a loan existed. Community property laws, which can vary by state, can influence the responsibility of each party when a loan exists.
Published on BankingQuestions.com 1/30/08
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