Who can foreclose a piggyback mortgage? Well, first let’s talk about a piggyback mortgage. Piggyback mortgages were used to avoid having to obtain mortgage insurance whenever you acquired a home. The purchaser would borrow 80 percent loan to value for a first mortgage, which would not require any mortgage insurance.
They would then see about getting a second mortgage, which was a home equity loan (for either 10, 15, or whatever amount they could obtain over and above the 80 percent) so they would have a very small down payment. Home equity loans do not require mortgage insurance, so they would avoid the mortgage insurance premium that would have to be paid if they obtained, let’s say, a 95 percent loan to value.
So the question then becomes, “Well, who can foreclose?” If you don’t make the payments under the first mortgage, they have the ability to foreclose and take the property away from you. If you don’t make the payments on the second mortgage, well, they can foreclose also. In this day and time, though, value of property has decreased so much that there’s usually no, or very little equity in the property – so the second mortgage is basically unsecured.
The second mortgage holder (if you didn’t pay them) can sue the borrower on the promissory note and probably just avoid the foreclosure process. The first mortgage holder could foreclose its first mortgage and include the second mortgage holder in the foreclosure action and wipe out any lien that the second mortgage holder would have.
Sometimes this is a little bit problematic when the first mortgage holder and the second mortgage holder are the same lending institution. In this case, the question becomes, “Can they sue themselves?” Many times they don’t, which then raises another question in the event of a foreclosure where the second mortgage is not included – whether or not you’ll have a problem if you buy the home at a foreclosure sale and be required to pay the second mortgage holder.
So an answer to the question “Who can foreclose a piggyback mortgage?” – either party can, if you default under either mortgage.
If you have any questions about foreclosures (whether it be piggyback or otherwise), give me a call at (727) 847-2288. Thank you.