This article discusses the basics of Minnesota foreclosures. This part addresses the impact a foreclosure of a first mortgage has on a second mortgage (home equity loans).
This is part five of a series on Minnesota foreclosures.
- Minnesota Foreclosure Law Basics
- Foreclosure by Advertisement
- Foreclosure by Action
- Deficiency Judgments
- Foreclosure of a 2nd Mortgage
Second Mortgage Foreclosures
So far, these articles have discussed first mortgages. But what about second mortgages?
What is a second mortgage?
A second mortgage is often called a home equity loan or a home equity line of credit. A second mortgage is simply another loan that is secured by your real estate.
The bank that offers a second mortgage is called a junior lien holder because the bank holding the first mortgage is the senior lien holder. The position of junior versus senior generally relates to which bank filed their mortgage first.
Foreclosure’s Impact on a 2nd Mortgage in Minnesota
When a senior lien holder (the bank owning the 1st mortgage) forecloses on a home, all junior liens/mortgages are wiped out. This means that the property is no long subject to (encumbered by) those liens. It does not mean the former home owner no longer owes money for those loans.
After the senior lien holder (the 1st mortgage bank) forecloses, the homeowner still has a contractual obligation to repay any other loans or promissory notes even though those loans no longer encumber the property (a.k.a. mortgage).
Example of Homeowner’s Liability for 2nd Mortgage
For example, Sue has a $200,000 first mortgage with Wells Fargo and a $50,000 line of credit with TCF Bank, which is a second mortgage. The first mortgage foreclosed by advertisement, so Sue owes nothing to Wells Fargo. However, Sue still owes $50,000 to TCF Bank. TCF Bank no longer has a loan on the property, but Sue is still subject to her agreement repay the $50,000.
Minnesota Foreclosure Basics
If you want to read more, see our entire Minnesota foreclosure series: