Can a Second Mortgage Foreclose?

In most states, including Maryland the answer is yes a second mortgage can foreclose if in default.   The practical difficulty is that many junior mortgages are partially or wholly under water.  This makes foreclosure all but impossible.  In the case of a junior mortgage, there is always a senior mortgage with superior rights and first dibs on the money from the sale.  Moreover, there are often tax and condo fee creditors with rights that trump the junior mortgagee.  Consequently, unless there is clear equity above all outstanding liens and the expected costs of the foreclosure process, a junior mortgagee is extremely unlikely to press a foreclosure.  We often see people with second mortgages that are in severe default but with no attempts on the part of the junior mortgagee to foreclose.  One can’t take too much solace in this because the lien will stay with the property and will be a major problem if the property appreciates or if the homeowners ever want to sell or refinance the property.

Note: I mention this all the time, but it warrants repeating….Wholly unsecured junior mortgage liens can be stripped off and eliminated in a Chapter 13 bankruptcy.  This is dramatic relief and is only possible now given the recent drop in home prices.  As prices appreciate again, the opportunity will no longer be available.