What exactly does it mean to take out a second mortgage?

[Chris Taualii]

Hello BP.  I wanted to see if someone can please break down how and what exactly is a second mortgage?  I've heard it many times, and I do apologize if it's sort of a dumb question, but I never really understood how it works?  Thank you.

[Joel Owens]

A second mortgage is debt on top of a senior first position note.

The second mortgage could be from a private investor, a lender, a bank, the seller etc.

Generally the senior position has the authority to foreclose unless the second gets the first to subordinate the debt ( subordinate means the first mortgage is to give the second mortgage control and first rights even though they are in second position).

An example is  a 20 unit apartment building.

Appraisal shows the property is worth 1,000,000

1,000,000 loan would be a 100% loan to value.

So if you had a senior mortgage 1st position of 700,000 and a 2nd mortgage of 200,000 you would have a CLTV ( combined loan to value ) with both loans of 90%.