Multiple Mortgages in Bankruptcy
I was looking at the Property Shark records for 669 Classon (http://bstoner.wpengine.com/brownstoner/archives/2009/02/how_unfortunate.php) and remembered a question that I keep meaning to ask. It goes something like this: financing a purchase with multiple mortgages seems to be fairly common. Or it was at one point. I was working out a mortgage on a building I didn’t…
I was looking at the Property Shark records for 669 Classon (http://bstoner.wpengine.com/brownstoner/archives/2009/02/how_unfortunate.php) and remembered a question that I keep meaning to ask.
It goes something like this:
financing a purchase with multiple mortgages seems to be fairly common. Or it was at one point. I was working out a mortgage on a building I didn’t end up buying and our loan officer came up with a similar plan to what PS shows on Classon. One traditional loan and a second HELOC. In our case the numbers were about 50/50, and we were planning to put 20% down. At 669 the second loan was more like 10%, but they only put 10% down.
I believe that if you are foreclosed on in your primary home, the bank can’t come after you for more than the house itself. Even if you have a million dollars in the bank, a lender can’t take more from you than the home. That isn’t the case for secondary loans or home equity loans: you could be on the hook for that money long after the house is gone.
So I suppose I just answered my own question, but maybe another question is … are people seeing loans like this? Why don’t we hear more about them in the news?
Loosing your home and down payment is no joke, but losing both and still being on the hook for added money is a far bigger deal.
Thanks Ozymandius.
It was a general curiosity question, fwiw.
But: one thing about co-signing is that it isn’t the co-signers primary home. In other recent configurations (god I’m getting sick of looking for a house) we were discussing buying a four unit place with my parents. They’d own one unit outright, per a tenancy in common agreement, they’d pay us a fee to manage that unit for them. They’d have a little bit of income and a place they could maybe come live in for a year if we ever get around to breeding.
A thing that came up in those conversations was similar to your wife’s situation: my parents were marginally concerned that if they were on our mortgage, they’d be vulnerable to exactly what happened to your wife. That if we’re alone on the mortgage the bank can’t come after more that the house (assuming it is the initial mortgage and we haven’t re-financed and pocketed some equity), but that if they are also on the mortgage the bank could come after them for any remaining balance after the foreclosure sale.
(As it turned out the sellers were in their own financial mess and were going to make us sue them to force the sale. We cut our losses after six months in contract.)
Serpenter
You have multiple questions here and multiple issues. This is going to be treated differently depending on whether it’s in foreclosure or if it’s in bankruptcy. Lot’s of people do one or both. I’m not a bankruptcy expert but can provide guidance for a foreclosure.
The first mortgage has seniority and as a result, it is discharged first. Then the others typically in sequence of when the were originated.
You’re wrong that the lender can’t come after more than the house. The lender has a security interest in the house and as a result can force a sale or take possession of the home. But that does not negate the remainder of the principal amount / accrued interest and fees / attorney costs. My wife cosigned for a coop for her brother in the eighties and it ended up being foreclosed. The bank came after her for the remaining balance and got a judgement for it.
Bankruptcy is different in that you typically have some protection for your primary residence and often are able to keep it but would be able to discharge your other debts.