What happens if I cannot pay my second mortgage balloon payment?

Darrell asks,

“I have a 1st & 2nd mortgage. The 2nd is with a different mortgage company and it has a balloon payment which is due December 2009. What happens if I can’t pay the full mortgage balloon payment amount by Dec. 09 on the second mortgage. They can’t make me sale the house when I have a 1st mortgage with another company can they?

Thanks”

My answer:

Darrell, a second mortgage balloon payment is like any other payment in that if it is not received on schedule the loan will be soon considered in default triggering foreclosure if not rectified.

The option of “make me sale the house” is never a remedy to a lender who is not getting his payments. Confiscating the home through foreclosure is the remedy. Now would getting a foreclosure notice prompt you to sell the home…maybe but not likely. There is very little time to market a house once the foreclosure is filed.

So given that the lender isn’t trying to “force you to sell”. They are simply trying to get their money or collect the collateral. You could refinance to pay off the balloon payment or if you have the time, you could sell the home. Either way, it’s up to you to find the money to pay the mortgage balloon payment or lose the home to foreclosure.

The second mortgage company if the loan goes into default will file the foreclosure. You’ll be given a specified amount of time based on State law to pay or “cure the mortgage”. If you don’t, the home will be auctioned to the highest bidder at the court house steps. Read our glossary term to learn more - Curing a Mortgage

In the case of the second lien holder filing foreclosure, there are a few wrinkles. Once the first mortgage holder gets notified of the second’s foreclosure filing, they may cure the default and then file a foreclosure themselves or they will attend the auction and bid their loan amount on top the second mortgage company’s filing. This protects the first mortgage from getting wiped out by subordinate lien holder’s foreclosure.

Either way you lose the house…so if you have equity and want to keep the home, find a way to pay that mortgage balloon payment.

Thanks for the question!

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Tags: Balloon Payment • Foreclosure Q A • Second Mortgage