What happens to second mortgage in a loan modification?

Normally, in a modification of a first mortgage loan, there would be no effect on a second mortgage. This is because it is the promissory note of the first mortgage loan that is modified, not the mortgage itself. In a modification, the terms of the promissory note are somehow changed. Either the interest rate of the note is reduced, or the loan term is extended, or past-due payments are deferred. However, the first mortgage recorded against the home remains in place and is not re-recorded, so it doesn’t lose its position. That being the case, the second mortgage remains in the same position, as well, and its terms remain unchanged.

A modification is normally accomplished by the execution and recording of a modification agreement, which details the terms that are changed about the loan. The recording of the modification agreement doesn’t change the positions of the mortgages, so again there is no effect on the second mortgage.

There may be language in the second mortgage requiring that the second-mortgage holder be given notice of any changes to the senior mortgage. However, since a modification almost always modifies the terms of the mortgage in the financial favor of the mortgagor (homeowner), the second-mortgage holder would not be concerned.

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One Response to What happens to second mortgage in a loan modification?

  1. Pingback: Mortgage Practices Overhaul Proposed | SHORT SALE Minnesota

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