Facing foreclosure is a stressful situation for Canadian homeowners and this becomes even worse when foreclosure happens on a second mortgage. However, there is a way to deal with this event and save your home from falling down.
Understanding the process, knowing your rights, and exploring all available options can help you stop a second mortgage foreclosure and avoid losing your home. Remember, the sooner you address the issue, the more options you’ll have to find a solution that works for you.
Understanding Second Mortgage Foreclosure
A second mortgage is a loan taken out against a property that already has a primary mortgage. This could be in the form of a home equity loan or a home equity line of credit (HELOC). While a second mortgage can be a valuable financial tool, it also comes with significant risks, particularly if you fall behind on payments.
When you default on your mortgage payments, the lender can initiate the foreclosure process to recover the outstanding debt by selling the property. In the case of a second mortgage, the lender may have the right to foreclosure if you fail to make your payments.
Can a Second Mortgage Holder Force a Foreclosure?
Yes, a second mortgage holder can force a foreclosure. Despite the first mortgage’s priority, a second mortgage lender does have the legal right to initiate foreclosure if the borrower defaults on the second mortgage.
The lender will consider whether there is sufficient equity in the property to recover the amount owed. If the property value is high enough to cover both the first and second mortgages, the second mortgage holder may decide to proceed with foreclosure.
If the proceeds from the foreclosure sale are insufficient to pay off the second mortgage, the lender may seek a deficiency judgment against the borrower. This means the borrower could be held personally liable for the remaining balance.
How to Save Your Home from Second Mortgage Foreclosure?
Stopping a second mortgage foreclosure requires quick action and a clear understanding of your options. Here are several strategies to consider:
Refinance the First Mortgage
- Cash-Out Refinance: If you have substantial equity in your home, you might consider refinancing your first mortgage and taking out some of the equity as cash to pay off your missed mortgage payments.
- Refinance Both Mortgages: Another option is to refinance both the first and second mortgages into a single new mortgage to lower your overall payments and resolve the default on the second mortgage.
Obtain a Home Equity Loan or Line of Credit
- Home Equity Loan: You can get home equity loan where you will receive lump sum amount as a fund to pay off your second mortgage loan and stop foreclosure.
- Home Equity Line of Credit (HELOC): Same as home equity loan, HELOC also allows you to borrow against your home’s equity with better flexibility. You can withdraw your loan amount as needed to pay off your mortgage arrears in installments.
Negotiate with Your Lender: Many lenders are willing to work with homeowners to find the way to avoid foreclosure. Communicate with your lender and opt for options like repayment plan, loan modification, or temporary forbearance.
Sell Your Property: If you’re unable to refinance and foreclosure seems imminent, selling your property may be the best way to avoid foreclosure. By selling the home, you can pay off both your first and second mortgages and potentially walk away with some equity.
Consider a Short Sale: A short sale occurs when you sell your home for less than the amount owed on your mortgage, with the approval of your lenders. While a short sale won’t stop foreclosure, it can help you avoid the more severe consequences of a foreclosure, such as a deficiency judgment or significant credit damage.
When Is It Too Late to Stop Foreclosure?
Stopping a foreclosure is possible at various stages of the process, but the options available to you become more limited as the foreclosure progresses. Here’s an overview of when it might be too late to stop foreclosure and what you can do at each stage:
Early Stages: Notice of Default
- When It’s Not Too Late: The earliest stage of foreclosure typically begins with a Notice of Default (NOD). This notice informs you that you are in default on your mortgage and outlines the amount you need to pay to bring your loan current. At this stage, it’s not too late to stop foreclosure, and you have several options:
- Cure the Default: You can pay the amount you owe, including any late fees and penalties, to bring your mortgage current.
- Negotiate with Your Lender: You can contact your lender to discuss alternative plan options like repayment, loan modification, or forbearance.
- Refinance: If you have enough equity accumulated in your home, you might be able to refinance your mortgage to pay off the arrears.
Mid-Stages: Legal Proceedings
- When It’s Getting Late: If you do not respond to the Notice of Default, the lender will start legal foreclosure proceedings either by filing a lawsuit (judicial foreclosure) or issuing a Notice of Sale (non-judicial foreclosure) based on your jurisdiction. At this point, your options become more limited, but it is still possible to stop the foreclosure:
- File for Bankruptcy: This can temporarily halt foreclosure proceedings and give you time to repay and catch up on missed payments.
- Sell Your Property: You can try to sell your home before the foreclose takes place. This might include a short sale if the home’s value is less than what you owe, but it is only possible by the approval of a lender.
- Redeem the Property: Some jurisdictions allow you to redeem your property by paying off the entire loan balance (including fees) before the foreclosure sale. At this stage, you can consider refinancing your mortgages using your home’s equity.
Late Stages: Foreclosure Sale
- When It’s Almost Too Late: The foreclosure process typically culminates in a foreclosure sale, where your property is auctioned off to the highest bidder. Once the sale occurs, it becomes extremely difficult to stop the foreclosure:
- Right of Redemption: In some jurisdictions, you may still have a “right of redemption” period after the foreclosure sale, where you can redeem your property by paying off the full sale amount plus any additional costs. However, this period is often very short and may not be available in all areas.
Stand Strong: Fight Against Second Mortgage Foreclosure
Remember, you’re not alone in facing these challenges. Many have successfully navigated this terrain by leveraging the right strategies and seeking the right help. There’s always a way forward, even when the path seems tough.
We at Turnedaway.ca are here to help you with all available options to prevent foreclosure on your second mortgage and save your home. We provide invaluable support to borrowers struggling to secure financing, offering expert advice and access to alternative lenders to help prevent foreclosure and maintain homeownership. Contact us today!
