Main Loan Vs. Junior Loan

8 Replies

on an Action is it true that if i pay the main Loan I don't have to pay the Junior Loan?

In general NO.  You always have an obligation to pay on a loan unless the loan is discharged in a bankruptcy.  The priority of a lien does not matter.  

In your post it is not clear what you mean by "Action".  There is no action outside of a BK discharge or a court order which removes the obligation of a loan.  

Thank you So much. Action is just typo for Auction.

At auctions, in most cases a junior or subordinate loan will get wiped if the first loan holder foreclosing upon the owner AND the 1st mortgage names all other lien holders in the foreclosure action. It varies by state, as not all liens get wiped and survive the foreclosure such as HOA, taxes, IRS, violation, etc.

A foreclosure does not necessarily remove the obligation of repayment for junior liens.  It is true, those liens become unsecured as a function of the foreclosure, however, a junior lien can be still collectible (thus borrower is still obligated to pay) after a foreclosure action of the first position.  The second lien is simply unsecured by the event.  The debt is not terminated.

I mention this because the slang term of "wipe out" is a little misleading.  

Thank you So much this is very help helpful!

To clarify, it may be true that the debt is still collectible, but any junior liens such as 2nd mortgages are not the responsibility of the new title owner to pay off, since the loan has been unsecured from the title.  As long as the 1st mortgagor names the 2nd in the foreclosure action. The only recourse of the 2nd would be to pursue the original borrower.  

Originally posted by @Chad Urbshott :

To clarify, it may be true that the debt is still collectible, but any junior liens such as 2nd mortgages are not the responsibility of the new title owner to pay off, since the loan has been unsecured from the title.  As long as the 1st mortgagor names the 2nd in the foreclosure action. The only recourse of the 2nd would be to pursue the original borrower.  

 Chad, that is not entirely true.  Details matter.  There are liens which survive Foreclosure and as such become the liability of the new title owner.  Such liens are referred to as Super Liens.  They automatically take priority over all other liens and can not be wiped out.  

Thanks for pointing that out Dion, thought I missed that. However upon 2nd glance, I did state above "as not all liens get wiped and survive the foreclosure such as HOA, taxes, IRS, violation, etc."

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