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Can a Default on a Second Mortgage Result in Foreclosure?

Posted on in Foreclosure

Libertyville IL foreclosure defense lawyerOver the past decade, the threat of foreclosure has been ever-present for many homeowners. Those who are struggling financially may be concerned that missed or late mortgage payments will result in the loss of their home. However, many homeowners who have refinanced their homes or obtained additional mortgages may be unsure about how these loans will affect their financial situation, including whether mortgage lenders may foreclose if a person is in default on a second mortgage. By working with a bankruptcy attorney to understand these issues, homeowners can determine their best options for defending against foreclosure and managing their debts.

Defaulting on a Second Mortgage

A mortgage is a secured debt, and this means that if a homeowner defaults on the debt, the lender can foreclose and repossess the house. This is true not only for the initial mortgage on a home, but also for any subsequent mortgages or home equity loans. However, during foreclosure, the first mortgage will take priority, and lenders of second or subsequent mortgages will only receive payments if the amount obtained through a foreclosure sale exceeds the amount owed on the first mortgage.

If a home is “underwater,” meaning that its current value is less than the amount owed on the initial mortgage and any subsequent mortgages, lenders may not want to foreclose on a second mortgage, since they will likely not receive full payment of the amount owed. However, these lenders may pursue other options for repayment, such as filing a lawsuit against the homeowner to collect the amount owed. In many cases, homeowners may be able to negotiate with these lenders to determine how they can become current on a loan, since other options may not be financially beneficial for the lender.

Chapter 13 bankruptcy may also be an option for homeowners who have defaulted on a second mortgage. In this type of bankruptcy, a repayment plan is created to allow a debtor to pay off their debts over a period of three to five years. If a home is underwater, second or subsequent mortgages may be reclassified as unsecured debts and included in this repayment plan. Once the plan has been completed, any remaining unsecured debts will be discharged, and the debtor will not be required to pay them.

Contact Our Libertyville Foreclosure Defense Attorneys

If you are struggling to make payments on a first mortgage, second mortgage, or other debts, you will want to understand the steps you can take to regain financial security while avoiding foreclosure on your home. At Newland & Newland, LLP, we can explain your options, and we will work with you to ensure you meet all requirements when filing for bankruptcy, negotiating loan modifications, or addressing other issues related to debts and real estate. Contact our Lake Forest bankruptcy and real estate lawyers today at 847-549-0000 to set up a free consultation and learn more about how we can help with your situation.




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