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lionsden123456 · Sep 14, 2012, 10:54 AM

My condo was foreclosed on a year ago. I had tried for two years to do a refinance, loan modification, short sale and had worked with attorneys and real estate agents along the way. In the end the property was sold at auction. I realize my credit will take a massive hit for a few years but does anyone know for how long? Also the fiirst loan on my credit report shows closed do to a foreclosure. The second loan shows active but over 120 days late. I am concerned that the second will continue as active even though the house foreclosed. At the same time I do not want to raise the issue with the bank who might decide to get a judgement on the balance of the second. Anyone have any thoughts here? Not sure if it matters but I reside in California.

smoothy · Sep 14, 2012, 10:56 AM

At least 7 years...

Magpie95 · Sep 17, 2012, 11:03 AM

Right, 7 years and even then you may have to write in to have it removed. However, typically you can improve your score over that time even with the foreclosure.. if you do everything right after that. It just takes time.

As for the second lien, is it with a different lender or servicer? During a foreclosure, the lender that holds first lien position is paid first. Depending on the details of the auction and who was paid, you could still be on the hook for the second lien.

lionsden123456 · Sep 17, 2012, 11:20 AM

Originally Posted by Magpie95

Right, 7 years and even then you may have to write in to have it removed. However, typically you can improve your score over that time even with the foreclosure..if you do everything right after that. It just takes time.

As for the second lien, is it with a different lender or servicer? During a foreclosure, the lender that holds first lien position is paid first. Depending on the details of the auction and who was paid, you could still be on the hook for the second lien.

The second is with the same lender.

Magpie95 · Sep 17, 2012, 12:35 PM

Originally Posted by lionsden123456

The second is with the same lender.

In this case, the second mortgage is usually canceled or "extinguished" in a foreclosure. The bank has to write it off as a loss. Because the mortgage held lists the property as the security backing the loan.. and the property is being foreclosed for payment of the first mortgage with the same lender. Basically, lenders assume a LOT of risk with 2nd liens. This is why they are less common than they were during the sub-prime hay day.

Your lender does have the option of getting a judgment against you for the unpaid second lien. Basically, after the foreclosure is a done deal and the first lien is paid and closed. They can go to court to have a judment held against you to pay the second. This would go on your credit and would have to be paid first before ever getting another mortgage.

However, I am unsure how often banks pursue this avenue... or how often it is awarded by the court. With this day in age, and the condition of the industry. I doubt many of them would choose to do this, but then who knows.

It is also likely that your credit report just hasn't updated for the 2nd lien. Banks process mortgages separately. So, the second lien (since it wasn't part of the foreclosure payment process) could just still be pending a payment... until the internal process at the bank closes it.