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What Happens to the second mortgage if the first forecloses?


When the first lender carries out a foreclosure sale, the second mortgage lender may be able to take the following steps:

- File a deficiency judgment against you if the foreclosure sale doesn’t cover the entire second mortgage loan balance.

- File a civil judgment against you in court or garnish your income.

- Bid for the property at the time of foreclosure sale in order to recover the money the second lender has invested.

- Even after the first lender sells off the property, the second lender can pay off the required amount of money to the first and get back the property at the end of the redemption period.

In addition to these options, the second lender can also charge-off any unpaid that isn’t paid off from the sale proceeds. A charge-off means the lender considers the debt as uncollectible, but don’t lose your obligation to pay off the mortgage.

A charge-off will have a negative impact on your credit score. If you repay the charged-off debt, you can request that it be reported as “Paid Charge-off” or “Settled Charge-off”.

In the event you do not pay off the debt, it may be considered as income and might be taxable. However, if the debt is forgiven, you may be exempt from this tax under the Mortgage debt forgiveness act of 2007.

Related Posts:

Deficiency Judgments
Foreclosure Prevention Options
Foreclosure Timelines & Consequences

Should you have any questions or need further information,
please don’t hesitate to contact me, (775) 220-1630
Or visit my blog at

Joshua Talayka
Chase International
Office: 775 850 5900
Toll Free: 877 922 5900
Cell: 775 220 1630
Fax: 775 850 5901
985 Damonte Ranch Pkwy, Ste. 110
Reno, Nevada (NV) 89521

About The Author

Josh Talayka
Aside from my knowledge and experience in the Real Estate Industry, i also bring to the table a background in both Retail Sales and the Information Technology Industry. My Sales experience gives me the ability to handle objections easily and quickly take control in any negotiation. Whether you are looking to buy or sell, I guarantee that with me in your corner you’ll have the upper hand throughout the transaction. My experience in the Information Technology Industry gives me a unique edge in today’s high paced, internet driven world.


3 Responses to “What Happens to the second mortgage if the first forecloses?”

  1. Have you ever considered creating an ebook or guest authoring on other blogs? I have a blog based upon on the same ideas you discuss and would really like to have you share some stories/information. I know my viewers would appreciate your work. If you’re even remotely interested, feel free to shoot me an e mail.

  2. chase says:

    My primary residence was foreclosed on, I had a first and a second loan. The lending company is the same for both loans. They sent me a 2099 (1099a) for the first loan showing 185,000 owed vs 155,000 fmv. My understanding is that I can fill out a form 982 and have that debt excluded from my income under the Mortgage debt forgiveness act of 2007. If this is the case, what happens with the second loan? If they dont send me a 1099 for the second, is it just a waiting game to see if I get sued or am I protected under the Mortgage debt forgiveness act of 2007? Btw the second loan value is roughly 50,000.

    • admin says:

      To answer your question:

      First off, I am not an attorney and would recommend you speak with an attorney to verify this information.

      If you have not received a 1099 for the second loan, this may indicate that they are not forgiving the amount owed. My understanding of The Mortgage debt forgiveness act of 2007, is that it would not apply to your situation regarding the second loan.

      If you go through your original loan documents, chances are there was a clause that stated you agree to stay current on your primary mortgage (or similar verbiage). By allowing the property to foreclose, you may be in Breach of Contract with the second lien holder. Because it was not the second lien holder that foreclosed on the property, they may be able to pursue you for a deficiency judgment under the laws pertaining to breach of contract. In the state of Nevada, they may have up to 6 years to file for a deficiency judgment under the laws pertaining to breach of contract.

      My suggestions:

      You may want to contact the lender and inform them that you haven’t received a 1099 for the loan in question. With any luck, they just failed to issue it. If not, they may inform you that they do not consider the amount forgiven. In this circumstance, you may want to speak with an attorney about your options.

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