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Mortgage  Question?
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Can Bank Foreclose If Delinquent On Second Mortgage?

We have a first and second mortgage with the same bank. We are current on the first mortgage and delinquent on the second mortgage. Will the bank put us into foreclosure? What are our refinance options?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

If your lender forecloses on your second mortgage that will automatically put your first mortgage into foreclosure due to the acceleration clause in the first mortgage. In short, if your second mortgage lender demands to get paid by putting a property into foreclosure then your first mortgage lender will demand to get paid before the second mortgage lender, so both mortgages go into foreclosure. In your case because both your first and second mortgages are with the same lender my guess is that the lender prefers one delinquent mortgage (your second mortgage) to two delinquent mortgages and that is why your lender has not foreclosed on the second mortgage. Your bank's position and actions could certainly change in the future but I imagine this is their current reasoning.

Your options for addressing the situation are somewhat limited. We outline your options below and address which ones are feasible based on the circumstances you described:

1) Refinance your second mortgage with your current lender. In an ideal scenario you would keep your existing first mortgage in place and refinance your second mortgage at a market interest rate with your current lender and resolve any late payments and fees with the new loan. It is unclear why your current lender would not be open to this approach.

2) Refinance your second mortgage with a different lender. Unfortunately refinancing your second mortgage with a new lender at a market rate will be challenging, if not impossible, because you are delinquent on the loan.

3) Refinance your second mortgage with a hard money lender. If your current lender or other traditional lenders are unwilling to refinance your second mortgage then you could work with a hard money lender. Hard money lenders charge higher interest rates and fees but the rate may be lower than the current interest rate on your second mortgage. If you make your payments on-time for two years you could refinance the hard money second with a new second (or new mortgage that combines both your first and second mortgages) at a market interest rate.

4) Refinance both your first and second mortgage with your current or a new lender. With this scenario you would resolve the delinquent second by refinancing both your first and second mortgage into a new first mortgage. The downside to this approach is that the interest rate on your first mortgage may increase. Additionally, it is unclear if you could qualify for a new first mortgage given your current delinquency on your second mortgage.

One of the biggest factors that will determine the feasibility of any potential financing is your loan-to-value (LTV) ratio.  The appraised fair market value of your property would need to be high enough to support an LTV ratio of 80% - 90%, depending on your actual loan amount and the lender's LTV limit. If the fair market value of your property is too low and the LTV ratio is too high you may not be able to obtain financing.

Based on the financing options above it seems like your best approach is to continue to try to work with your current lender to resolve the delinquency on your second mortgage and hope that eventually they are open to a reasonable solution. The hard money option may also be feasible but would require you to pay a high interest rate and fees, so that is not preferable.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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