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If a house has first and second mortgages and the first mortgage lender accepts a short sale offer that does not leave any money for the second mortgage holder can the second lender recover money beyond the house that was listed as collateral? Otherwise, can they obtain a judgement for the rest of the debt that remains after the first is paid?

2 Thoughts on Second Mortgage Lender re: Collateral?
  1. Reply
    alakaybee
    February 9, 2014 at 4:16 pm

    The second mortgage lender can decide how to handle this. They will still need to approve the sale, as they have a valid lien on the property. They can obtain a judgement for the deficiency balance. Some banks just accept the money left over, but issue a 1099 and force the person to treat the unpaid differential as income.

  2. Reply
    BOB F
    February 9, 2014 at 4:38 pm

    If you hold a second mortgage and the first mortgage consents to a short sale, it is the first mortgage owners loss.

    The second mortgage lien is not changed by the first mortgages short sale. It is still in effect for the full amount of the second mortgage EXCEPT it is now a FIRST MORTGAGE.

    The terms of the second (now first) mortgage must be complied with by the new owners. If not the second (now first) mortgage can foreclose.

    The only way the second mortgage owner will be in trouble is if the first mortgage foreclouses and the property is sold at auction. In this case the second mortgage becomes an unsecured loan. Email me at [email protected] if you need more info.

    BOB

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