Incomes Growing Faster than Debt in US
Owning a home is the epitome of the American Dream. Having a piece of property in your name can be the best feeling but also the worst once you realize the financial obligation that comes along with it.
Unless you have a few hundred thousand dollars laying around, you most likely took out a loan to purchase your home. People commonly refer to home loans as mortgages, but they’re actually made up of two separate binding agreements: a promissory note and a deed of trust (mortgage). The promissory note is the homeowner’s promise to repay the lender. The deed of trust puts a lien on the property, allowing the lender to foreclose the property if the homeowner defaults on loan payments.
This initial home loan is the first mortgage. Any loan that puts a lien on the property after that is considered a second mortgage.
What Exactly is a Second Mortgage?
A second mortgage is similar to the first on the basis that lenders use your home as collateral; however, they’re often formatted a bit differently. People often take out home equity loans and home equity lines of credit (HELOC) as second mortgages. Here’s how the two differ:
- Home Equity Loan: This is structured similarly to a first mortgage. The homeowner takes out a loan from a lender and receives it all up front in a lump sum. The homeowner is responsible for making monthly payments until the loan is paid off entirely.
- HELOC: This is similar to a credit card in the sense that homeowners can take out funds a little at a time up to a specified limit during the draw period. During the draw period, the homeowner can also pay off the amount borrowed entirely and may be given the option of only paying the interest. Once the period ends, the borrower must make monthly payments on the loan including accrued interest.
Second Mortgage Lender Debt Collection
Second mortgage lenders are junior lienholders, and first mortgage lenders are senior lienholders. Both entities can pursue foreclosure, but the senior lienholder will always take priority, meaning that if a second mortgage lender initiates a foreclosure, they will have to pay off the first mortgage lender before they can collect themselves.
Due to this, junior lienholders will only pursue foreclosure if the homeowner has majority equity on their property. Otherwise, they can be left with little to nothing if they foreclose on a property that is mostly covered by a mortgage.
When it comes to collecting on a defaulted second mortgage, the second mortgage lender can pursue a personal lawsuit if foreclosure is unfavorable or if the first mortgage lender already foreclosed the property. The lawsuit will focus on the breach of agreement by the borrower as the homeowner would have violated the promissory note by not repaying the loan as agreed.
Debt Settlement Options for Homeowners
Whether you are facing foreclosure, a lawsuit from a lender, or both, you’ll need the legal counsel of an experienced attorney. Heather Benveniste with Benveniste Law Offices can step in and negotiate your loan repayment with lenders to help you keep your home and settle on a favorable repayment plan. Loan payment renegotiation is highly beneficial but only available if you act fast. Contact an Illinois mortgage debt attorney today for a free case evaluation.
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