Can a Second Mortgage Foreclose on my Home?

In theory, the answer is, yes. A junior mortgage, such as a HELOC or other second or third mortgage, can foreclose in Massachusetts.  There are additional procedures for the foreclosure of junior (second, third, etc.) mortgages that are different than those for first mortgage holders. However, in this economy, many junior mortgages are partially or wholly under water.  This makes foreclosure impractical.

There is always a senior mortgage with superior rights and first dibs on the money from a foreclosure sale.  Tax and condo fee creditors may even exist with rights that trump a junior mortgagee.  Consequently, unless there is obvious equity above and beyond all outstanding liens and the expected costs of the foreclosure process, a junior mortgagee is extremely unlikely to press a foreclosure.  We often see people with second mortgages that are in severe default with no attempts on the part of the junior mortgagee to foreclose.  However, unless the junior mortgage is wholly unsecured because it is completely out of the money and can be stripped in a Chapter 13, that mortgage lien will stay with the property and so will have to be paid off with interest upon a normal sale.  That could happen with real estate prices rising again in the future leaving homeowners with more opportunities to sell or refinance property.

Note: I mention this all the time, but it warrants repeating….Wholly unsecured junior mortgage liens can be stripped off and eliminated in a Chapter 13 bankruptcy.  This is dramatic relief and is only possible now given the recent drop in home prices.  As prices appreciate again, the opportunity will no longer be available.

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