When the first mortgage is paid off and the second mortgage has been completed, the amount of time that has passed can be shown on the sales records. The difference between the first mortgage and the second mortgage is the length of time for which the latter mortgage has been in effect. Therefore, for a period of three years, the value of the home would be more than the value of the second mortgage, if the second mortgage was a payment on the first mortgage.
However, if the second mortgage is still unpaid when the term expires, it becomes due and payable. It is the responsibility of the lender to file an action for foreclosure if the debtor fails to pay the mortgage.
Thus, the amount of time available for the second mortgage is based on the duration of the first mortgage. Because of the length of time available, and the fact that the values of homes depreciate, lenders often use the combined time periods of the first and second mortgages to compute the value of the home as of the date of foreclosure.
Typically, mortgage lenders will not allow the homeowner to retake the loan if the first loan is held up in court or if the second mortgage has not been paid at all. As a result, the amount of time remaining on the second mortgage can vary.
Length of time used for computing the value of the home during foreclosure is one thing. There are some homeowners who do not consider the value of their home when they take out the second mortgage.
While it is true that the value of the home would decrease should the second mortgage not be paid off, the actual value of the home will not decrease at all. The owner would have to wait until the mortgage has been paid off to start the process of calculating the difference between the first and second mortgages.
The first and the second mortgages are treated differently by the loan. The second mortgage is deemed to be a “payment on the first mortgage” as a right of the lender to recover the loan amount. However, a foreclosure does not result in a loss to the lender, unless the second mortgage is only a payment on the first.
The second mortgage is considered to be a payment on the first mortgage because it is a right to recover the loan amount. Thus, the lender cannot foreclose on the property during the second mortgage.
The reason why there is a difference between the lengths of time available for the first and the second mortgage is that the lender gets two payments each month. The first mortgage is only one payment. With the second mortgage, there are two payments.
The first loan payment is recorded with the tax authority, in accordance with the regulations, but not the second mortgage payment. Thus, the lender cannot use the tax foreclosure to foreclose on the property.
A tax foreclosure is considered an illegal process by the IRS. Consequently, the IRS will not levy the delinquent taxes on the property until the time period for which the second mortgage was allowed to lapse.
Although the second mortgage may provide a reasonable protection against having to repay the loan, the federal tax authorities will not provide such protection if the second mortgage is not paid on time. The second mortgage provides protection but it is a limited one.