Expert: James Setters - 1/30/2008

Question
We received a Notice of Default 11/21/07 on our first Mortgage (Vanderbilt Mortgage).  We have an ARM with them an cannot refi due to the decreased market value.  We will most likely end up signing the house over to the bank.  We also have a 2nd mortgage with American General Finance.  Since the 1st mortgage is going into foreclosure, what happens to the 2nd?  The house is the collateral for the 2nd.  Do we still have to pay it?  Thanks so much.

Answer
Troy,

Thanks for the question. Regrettably, I have been getting EMAILS about this topic all too frequently, and I am sorry to hear about the difficulties you are facing.

There are different types of foreclosure actions and the one you describe is a "Deed In Lieu of Foreclosure". This is a circumstance where a lender will permit you to transfer the property back to them, thereby eliminating a lot of costs associated with the foreclosure process.

Since each state has different rules on this subject, and many states will not permit a lender to recover the difference I would recommend seeking legal counsel to protect yourself.


As for the subordinate lien, you may be required to pay it. Again, the laws vary greatly from state to state so I can't actually answer the question but you need to learn the rules, and more importantly your rights throughout the process. Best of luck.