Often, Massachusetts homeowners must take out more than one mortgage on their property over the course of their ownership. When obtaining a mortgage, the homeowner promises to pay back a loan plus interest over a period of time. The property serves as collateral for the mortgage in the event that a borrower defaults on the loan. If a borrower does default, on either the senior mortgage or a junior mortgage, this can result in a lien on the property. The second mortgage may be a home equity loan or home equity line of credit (HELOC). At Pulgini & Norton, our real estate attorneys can advise homeowners in the Boston area on their rights and options.Junior Liens in Massachusetts
The fact that a mortgage is a junior lien on the house means that if you cannot pay your mortgages and your home must be sold to pay off debts, the junior lien is paid off second. In some cases, the second mortgage lender does not get paid the full amount owed, and so the loan carries a higher interest rate to ensure some profit for the lender.
A second mortgage or junior lien adds to your debt burden. The main risk of taking out a home equity loan or HELOC is that if you do not make the repayments, you can potentially lose your home. In some cases, it may be appropriate to take out the second mortgage or home equity loan anyway, but it is important to be fully aware that you could lose your house if you default on the loan or if you owe significant money to the second mortgage lender after a foreclosure or short sale.
In case of foreclosure, the priority of liens establishes who gets paid in what order after a foreclosure. The priority of a lien is determined by recording date in most cases. Usually, the first mortgage is recorded first and has priority over any other liens. The exception is when there is a super or priority lien. This type of lien is available to a condominium board when a unit owner fails to pay the board the monthly fee that is required. A junior mortgage is usually in second position to the senior mortgage, but with respect to a condominium it may be third or lower in priority.
If a first mortgage lender forecloses, any funds left after the senior mortgage is paid off from the sale are distributed to junior lienholders. However, in many cases, the junior lien is not fully satisfied by the foreclosure sale because the value of the property has gone down since the mortgage was acquired. While the junior lien is extinguished by the foreclosure sale, the debt remains even though it no longer attaches to a piece of property.
As a former homeowner, you will still be responsible for the balance of money owed on the junior lien in court. The lender that gave you the junior lien can sue you on your promissory note. The difference between the foreclosure sale price and the total debt is known as a "deficiency."
Most foreclosures in Massachusetts are nonjudicial, which means the lender does not have to go through the court system. However, a deficiency judgment can be the subject of a separate lawsuit, as long as the lender provides you with notice 21 days before the foreclosure sale under Section 17B, Chapter 244 of the Massachusetts General Laws. A deficiency lawsuit must be brought within two years of the foreclosure sale.Consult a Boston Attorney for a Residential Property Transaction
Before you secure a second mortgage, it is crucial to consider the financial or debt burden you are taking on. At Pulgini & Norton, we understand how important the purchase of a home is for most people, and that sometimes a second mortgage becomes necessary over the course of your ownership. Our property transactions lawyers can advise Boston residents on how a home mortgage may affect their future. We also represent clients in other Massachusetts communities, including Medford, Cambridge, and Somerville. Call us at 781-843-2200 or contact us via our online form for a consultation.