Can a 2nd mortgage go from being secured to unsecured because only the 1st went into foreclosure?

UPDATED: Jun 22, 2009

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Can a 2nd mortgage go from being secured to unsecured because only the 1st went into foreclosure?

A mortgage company is trying to collect from me after my home went into foreclosure in 2007, i had a 1st & 2nd mortgage with them. The 1st went into foreclosure but the 2nd didn’t they said. They told me that because it didnt foreclose it now becomes a unsecured loan & i still owe 40k, but they said they will settle for 3k. they have been reporting since 2007 on my credit report, 120 days late with a balance of 40k. Is this legal?

Asked on June 22, 2009 under Real Estate Law, Michigan


B. B., Member, New Jersey Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

I'm assuming here that your house was sold as a result of the foreclosure on your first mortgage.  If the proceeds of sale just covered the first mortgage balance (including the costs of the foreclosure and sale), then the second mortgage loan is still your obligation.

There are two parts to a mortgage loan:  quite literally, the mortgage and the loan.  The mortgage is a document that gets filed at the courthouse in the same office that other land records like deeds are filed, and it makes the property collateral for the loan;  it's what gives the lender the ability to foreclose and force a sale of the property to collect if the payments aren't made.  The loan itself is a contract that requires you, the borrower, to repay the money.

$3000 to settle a $40,000 debt sounds like a good deal, as long as it ends the negative credit reporting as well.  All of this sounds legal, but I'm not a Michigan attorney and I don't have all the facts.  For advice you can rely on, please consult a lawyer in your area.  One place to find counsel is our website,

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