Foreclosure

• A lender can initiate foreclosure when you are late on second mortgage payments, just like the lender on your primary mortgage can initiate foreclosure. In this process, the lender attempts to collect payment from you, and if you do not pay, the lender sells the house. The money from the sale goes first to pay off your primary mortgage and then to pay off your second mortgage. If there is anything left after the mortgages and foreclosure fees are paid off, you get the remainder.
  
  

Time Frame

• The time from your first missed payment to the foreclosure varies depending on the lender, the state in which you live and whether you attempt to reach an agreement to keep the home and the mortgage. In general, a lender will send a demand letter within two months of the missed payment to let you know that you have broken your contract and need to make the payment if you want to keep your home. If you do not resolve the payment within 30 days, the lender will proceed with foreclosure. Bankrate.com estimates that the foreclosure occurs anywhere between 150 and 415 days after the first missed payment.
  
  

Avoiding Foreclosure

• When you fall behind on payments on your second mortgage, keep in touch with your lender. Let the lender know what is happening, why your payments are late and when you expect to be able to pay again. The lender is often willing to work with you to figure out a way for you to get back on track with payments and stay in the home. Some lenders might lower your monthly payment amount or give you a temporary reprieve. This is especially true if the home is worth less than you owe because the primary mortgage will be paid off in full before the second mortgage holder gets even a penny.
  
  

Considerations

• Before you take out a second mortgage, think long and hard about whether you are willing to put your house on the line to get your hands on this money. Calculate the monthly payments on the second mortgage, both now and if the variable interest rate goes up and work them into your household budget alongside your primary mortgage payments and other bills. Even if a home equity loan is less expensive than credit card debt or other types of debt, the risks associated with losing your home might not be worth the savings.