Second mortgage holder can foreclose

Dear Dr. Don,

Q. Can a second mortgage holder foreclose on a property? Even without the first mortgage being in arrears?

Thank you for your response, - Wondering Wes

Dear Wes,

A. Bad news. The second mortgage lender can foreclose on the property even if the first mortgage is in good standing with its lender. A second mortgage is a secured loan backed by the value of the home, just like the first mortgage. The difference is that the first mortgage lender is paid ahead of the second mortgage lender in the event of a foreclosure. That's why it's called a second mortgage.

If the second mortgage lender initiates foreclosure proceedings, the first mortgage lender may step up and buy out the second's interest in the property. Conversely, the second could negotiate to buy the first mortgage. As long as the home's appraised value exceeds the combined loan balances, there's not a lot of additional risk, and there is a real benefit, for one lender to control both mortgages.

If you thought you were safe by keeping up with the payments on the first mortgage while missing payments on the second, you're not. If the second has threatened or initiated foreclosure proceedings, you need to find a good real estate attorney that will help you manage this process and allow you to protect or realize the equity you have in the property.

The Bankrate feature, "Avoiding foreclosure," explains the foreclosure process.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.