If you are like me, you probably get confused when it comes to mortgages. It wasn’t until I actually had a mortgage that I really understood things like escrow, second mortgages, etc.
It really helps to do your homework and learn as much as you possible can about mortgages. Too many people are under informed when it comes to their own mortgages. Find a realtor or VA loan officer that can help answer your questions. Questions you have need not go unanswered, especially if you are considering letting your home go into foreclosure.
An important question to consider is, What happens to the second mortgage when the first mortgage forecloses?
If and when the bank sells a foreclosure property, the money is disbursed in a series of priorities. The first debt to be paid is the costs of repossession, sale and foreclosure. This includes any realtor fees, etc.
After all of the fees associated with the cost of sale, repossession and foreclosure are paid, the money is applied to the outstanding balance of the mortgage. If the outstanding balance on the mortgage is paid off completely and there is still money from the sale left, any other lien holders will be paid. This includes lien holders on a second mortgage.
Most times, there is not even money to pay off the entire debt. This is because home values have plummeted in recent months. Depending on which state you live in, the lien holder for the second mortgage could have the right to pursue payment. The best thing to do is to see whether or not your state is a “deficiency” state. If so, you might need legal representation.
When it comes to VA mortgages, knowing more is knowing best. Make sure you are well-informed before making any drastic changes to your mortgage.