My question is about mortgage and foreclosure.

Let's say for an example, individual A owns a single family home and he owes $200,000.00. He has first mortgage of $160,000.00 with Bank A and has home quity loan of $40,000.00 with Bank B. His current house value is $170,000.00.

My question is, if he decides to foreclose his house how the banks will distribute the money because in this example two banks are involved. If he wants to negotiate his interest rate which bank should he start with?

Thanks for your response.

I just bought a home in the process of foreclosure which had two mortgages through two separate banks. This is what happened: first mortgage took full repayment, second mortgage took 50%, the difference was written off by the bank and shows as a discharged debt on the sellers credit report forever. Discharged debt is bad, but not nearly as bad as a bankruptcy or full foreclosure. This was the info given to us by our realtor when we inquired about buying under a short sale/foreclosure. The realtor says that almost always without fail, the first mortgagor gets their money with the second taking the hit because of the willingness of the second to take the risk. So, that is what has happened historically apparently, but who knows how these trends may or may not change with the current economy and mortgage crisis/market.

First you don't choose to forclose, if you don't pay for enough months the bank will decide to foreclose on you.

At the foreclosure, the house is sold at auction, so if it is valued at 170,000 don't expect it to sell at auction for much more than maybe 120,00 or so, unless one of the lenders ( banks) places a bid at the value of the first mortgage ( very commmom for bank to take it)

But at foreclosures at least here, the first mortgage is paid off complete before anything at all is paid to the 2nd, almost always the 2nd mortgage holder never receives any money at the foreclosure sale.

If you are going to get foreclosed upon, why not give the bank the deed in lieu. You them MAY be able to negotiate how it is reported and if you will be liable for a deficiency judgment.

Or, try to sell it, even if you have to do a short sale. You can often negotiate how it is reported and save some grief.

Just some thoughts to keep a foreclosure off the credit report. Which may keep you from buying another home for 3-5 years.

LG