Second Mortgage Foreclosures

Let me start off by making it clear that any entity that has a lien on a property may foreclose on the lien. However, it rarely makes sense for any lien holder other than the lien holder in first position to foreclose on a property. In Minnesota, a lien holder has the option to foreclose judicially or via advertisement. Foreclosing by advertisement is typically faster, easier and costs less money. Therefore the majority of foreclosures in Minnesota are done via advertisement.

The foreclosure process is fairly simple. First a notice of default is sent to the borrower. After the notice of default has been issued, the foreclosure sale will typically be scheduled. The borrower is given a 6 week notice and then a 4 week notice of the foreclosure sale is advertised publicly. At the foreclosure sale the highest bidder  is issued a sheriff’s certificate of title. The foreclosure sale is typically followed by a 6 month redemption period. During the redemption period the borrower has the right to live in the property, rent it, or sell it.

When the end of the redemption period occurs there is really nothing that the second lien can do unless they are willing to pay off all of the liens in front of them. Typically there is a first mortgage on most residential properties in Minnesota.  It would only make sense for a lien holder in second position to pay off the first mortgage if there is any equity in the property. Given that real estate market values in the Minneapolis are have declined 33% on average and are continuing to fall, it is highly unlikely that there is any equity in the property.

Due to the lack of equity in most properties, it is extremely rare for a second mortgage to foreclose on a property. Of course when a borrower defaults on a second mortgage, it is very common for the collectors for the second mortgage to threaten to foreclose on the property. For the most part these are empty threats that are designed to motivate a borrower in default to make a payment.

It is much more likely that the second mortgage will attempt to collect the debt for the next twelve to eighteen months and then will charge off the debt. After that point it is very likely that the second mortgage will make an offer to the borrower to settle the debt for 10% to 50% of the principle balance.  Typically if a consumer accepts the offer and settles the second mortgage, a satisfaction of mortgage will be issued. The satisfaction of mortgage can be used to remove the second mortgage’s lien from the property.