The short answer is yes! Any lien holder on a property can foreclose on a MN property. HOWEVER, most second mortgages do not bother with foreclosing and here is why. If a second mortgage was to go through the foreclosure process, they could eventually obtain title (ownership) of the property.
The problem is that there will STILL BE A FIRST MORTGAGE that has a lien on the property. By foreclosing, the second mortgage only wipes out liens that are junior to the second mortgage (e.g. mechanics liens, association liens, etc.). The first mortgage would need to be paid off in order for the second mortgage holder to have clear title (ownership) of the property.
If the first mortgage is not being paid, then it is likely that the first mortgage will also foreclose on the property. If the first mortgage forelcoses after the second mortgage, then the first mortgage could take take ownership of the property.
In the current real estate market approximately 30% of real estate is under water (the mortgages total more than the value of the property). It is very rare for a second mortgage to foreclose becuase they would typically spend more money foreclosing and clearing title to the property than they would if they simply went through the collections process.
A second mortgage that is in default (not being paid) will typically try to collect from the borrower. If the second mortgage is unable to collect they will eventually “charge off” the debt and report it to the credit bureaus. If the second mortgage is large (e.g. over $100,000) there is a higher probablility that they will take the borrower to court in order to obtain a judgement that allows them to pursue collecting the debt via liens, garnishments, etc.
All of our short sales are attorney negotiated at no cost to the seller. If you are facing a foreclosure and are wondering what your options are, call me today at 612-554-5901 or email MaryAlice@MaryAliceShort.com
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And yet we see associations doing foreclosures on a regular basis here in Minnesota. Many times for amounts in the $3,000-$6,000.
Is there something about this situation that doesn’t hold to the logic of a secondary mortgage not wanting to foreclose?
I have been trying to figure this out for a couple of years now.
@Steele V. Propp: Foreclosure has been a traditional way for many associations to attempt to collect unpaid dues. When an association is not paid by a unit owner, they will obtain a personal judgment against they owner. When the real estate market was appreciating it made sense to lien the property and foreclose. Once they association owned the property, they could sell the property, pay off the existing mortgages, pay off the judgments, and typically make a profit. Associations have failed to keep pace with the times or even do some basic research before they choose to foreclose in the current market. Now, an association will typically discover that the mortgages total far more than the market value of the property. Of course, they typically figure this out AFTER they have paid an attorney thousands of dollars to foreclose (funny how attorney’s never seem to mention this to their clients). A simple title search PRIOR to choosing to foreclose could save many associations time and money. Instead of foreclosing, associations would probably be better off garnishing wages or putting liens on unencumbered assets the owner may posses.
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