What Happens If I Don't Pay My Second Mortgage?

If you fall behind on the payments for your second mortgage, the lender might or might not foreclose, depending on the home's value.

By , Attorney University of Denver Sturm College of Law
Updated 10/20/2023

A "second mortgage" is a home loan you take out using your house as security. The second mortgage is junior to another mortgage (a "first mortgage"). A few common examples of second mortgages are home equity loans and home equity lines of credit (HELOCs).

If you have a second mortgage on your home and fall behind in payments, the second mortgage lender might or might not foreclose, usually depending on the home's value. Here's why.

What Is Lien Priority?

A senior lien, such as a first mortgage, takes priority over a junior lien, like a second mortgage. "Priority" determines which lender gets paid before others after a foreclosure sale.

The Mortgage's Recording Date Usually Determines Priority

Generally, priority is determined by the date the mortgage or other lien is recorded in the county land records. However, some liens, like property tax liens, have automatic superiority over essentially all prior liens.

First mortgages are, as the name suggests, typically recorded first and are in a first lien position. Second mortgages are usually recorded next and are, therefore, in the second position. Judgment liens, if any, are often junior to a first mortgage and possibly a second mortgage, as well as perhaps other judgment liens that other creditors previously filed.

What Are the Consequences of Not Repaying My Second Mortgage?

A lender can choose to foreclose when a borrower becomes delinquent on a mortgage loan, whether the mortgage is a first or a second mortgage. If you default on your first mortgage, the lender will likely begin foreclosure proceedings.

If, on the other hand, you default on a second mortgage, whether that lender will initiate a foreclosure depends mainly on your home's current value.

What Happens to Homes With Higher Values

If your home's value exceeds the amount you owe on your first mortgage, your second mortgage is at least partially secured. So, the proceeds from a foreclosure sale will pay off the second mortgage in part or in full.

In this situation, the second mortgage holder will probably initiate a foreclosure after you fall behind in payments on that loan because it will recover part or all of the money it loaned to you once the property is sold at a foreclosure sale. The more money a second mortgage holder will get after a foreclosure sale, the greater the likelihood that the second mortgage holder will foreclose.

What Happens to Underwater Homes

If your home is underwater (your home's value is less than the amount you owe on your first mortgage), your second mortgage is effectively unsecured. So, if the second mortgage holder foreclosed, the foreclosure sale proceeds wouldn't be sufficient to pay anything to that lender.

In most cases, if you're underwater and fall behind on payments for your second mortgage, the second mortgage holder probably won't start a foreclosure. That's because all the money from the foreclosure sale would go to the senior lender. But the second mortgage lender could, if allowed by state law, sue you personally for repayment of the loan.

Lawsuits From Lenders on Second Mortgages, HELOCs, and Other Junior Lienholders

Again, even if the second mortgage holder decides not to foreclose, that lender can potentially sue you to recover the money it loaned you if state law permits it. This type of suit commonly happens after the first mortgage holder forecloses, though it could happen sooner.

Sold-Out Junior Lienholders

In a first mortgage foreclosure, any junior liens, including second mortgages, HELOCs, and others, are also foreclosed. And those junior lienholders lose their security interest in the real estate. This kind of lienholder is sometimes called a "sold-out junior lienholder."

Sold-out junior lienholders sometimes file suits. When a junior mortgage holder has been sold out in a first mortgage foreclosure, that junior mortgage holder usually can, depending on state law, sue you personally on the promissory note to recover the money it loaned you.

How sold-out junior lienholders collect from you. If a junior lienholder wins a lawsuit and gets a money judgment against you, that lender may generally collect this amount using regular collection methods, like garnishing your wages or levying your bank account.

Filing for bankruptcy might provide some relief. Filing for bankruptcy can potentially reduce or eliminate this type of debt.

What Are My Options If I Can't Repay My Second Mortgage?

If you're struggling to make the monthly payments for your second mortgage or are already behind, consider the following options.

  • Forbearance. In a forbearance, your lender allows you to stop making payments or to make reduced payments for a set period.
  • Repayment plan. In a repayment plan, you pay some of the delinquent amount along with your regular mortgage payment over a set period to get current on the loan.
  • Loan Modification. A loan modification might make the payments more affordable and help you avoid a foreclosure or lawsuit.
  • Refinancing. If you have good credit and financial resources, you might be able to refinance your first and second mortgages into a single loan with a better interest rate and terms. You might end up with a lower monthly payment amount.
  • Chapter 13 Bankruptcy. Filing for Chapter 13 bankruptcy can provide a way to pay your second mortgage arrears. If your house has decreased in value since you bought it, a Chapter 13 bankruptcy might help you get rid of your second mortgage lien.

Which option is best for you will depend on your specific financial situation and goals.

How Do I Get Out of a Second Mortgage?

Several options are available if you want to get rid of a second mortgage. You could pay it off in full. The lender will then release the mortgage (the lien) from your home.

Or you could try to negotiate a reduced lump-sum payoff. You would have to get the lender to agree to let you pay a portion of the outstanding balance. The lender would then forgive the remaining balance.

Again, you could refinance your first and second mortgage loans into a single loan if you qualify.

What Are My Rights If I Can't Repay My Second Mortgage?

If you can't work out a loan modification or another alternative for your second mortgage and the lender decides to start a foreclosure, you have rights during the process. Federal and state laws regulate foreclosure, and lenders must strictly comply with those laws.

What Resources Are Available to Help Me If I Can't Repay My Second Mortgage?

Your first step if you're having trouble repaying your second mortgage should be to call your loan servicer. The servicer can tell you what options are available. Be sure to understand the differences between the various alternatives the servicer might offer, like a repayment plan or loan modification.

If you're facing a foreclosure and have multiple liens on your property, consider talking to a foreclosure attorney to find out what will happen to those liens and learn about various options in your particular circumstances. Also, make an appointment to talk to a (free) HUD-approved housing counselor.

Talk to a bankruptcy lawyer if you're considering filing for bankruptcy.

Talk to a Foreclosure attorney.
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