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Dr. Don Taylor, CFA, Bankrate.com advice columnistSecond mortgage holder can foreclose

Dear Dr. Don,
Can a second mortgage holder foreclose on a property? Even without the first mortgage being in arrears?

Thank you for your response,
-- Wondering Wes

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Dear Wes,
Bad news. The second mortgage lender can foreclose on the property even if the first mortgage is in good standing with its lender. A second mortgage is a secured loan backed by the value of the home, just like the first mortgage. The difference is that the first mortgage lender is paid ahead of the second mortgage lender in the event of a foreclosure. That's why it's called a second mortgage.

If the second mortgage lender initiates foreclosure proceedings, the first mortgage lender may step up and buy out the second's interest in the property. Conversely, the second could negotiate to buy the first mortgage. As long as the home's appraised value exceeds the combined loan balances, there's not a lot of additional risk, and there is a real benefit, for one lender to control both mortgages.

If you thought you were safe by keeping up with the payments on the first mortgage while missing payments on the second, you're not. If the second has threatened or initiated foreclosure proceedings, you need to find a good real estate attorney that will help you manage this process and allow you to protect or realize the equity you have in the property.

The Bankrate feature, "Avoiding foreclosure," explains the foreclosure process.

Bankrate.com's corrections policy -- Posted: Feb. 6, 2006
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