Second mortgages were marketed as home equity loans, or home equity lines of credit, partly to conceal that they were liens on your house, just like the first mortgage.
I can’t tell you how many times I would ask a client, How many mortgages on your home?
To be told, just one, and we have a home equity line.
Mortgage just means debt secured by real estate.
I can remember when second mortgages were rare.
As the real estate bubble inflated through 2007, people bought homes “80-20”, 80% on the first mortgage, 20% on the second.
To help you get into that house you could not actually afford?
Because the first mortgage had a 20% equity cushion, it could be marketed easier, and carry a lower interest rate.
Too many of my clients let the bank figure out how much house they could afford.
Hey, if I could not afford to pay it back, why would they lend it to me.
So, the truth about most second mortgages is: they were a bad idea to begin with, gone sour.
Now that the bubble has popped, and lenders have gone back to having some standards, the housing market is in a prolonged slump.
Michigan, like most states, puts unpaid property taxes, and other government debts, like water bills, as first liens on a home.
They have to be paid even ahead of the first mortgage.
However, if a second mortgage wants to foreclose and take your house back, they have to pay off that first mortgage.
This is a tall order these days, with so many homes worth less than what is owed on them.
So, second mortgage company foreclosures are rare.
It is more likely that they will just sue you on the note.
In states where this is allowed, like Michigan, mortgage companies are not limited to the remedy of foreclosure, they can just sue you for the money, if you default.
And, if you file Chapter 7 bankruptcy, you can discharge your liability to pay the note, but, that second mortgage remains as a lien on your home.
The Truth About Second Mortgages