Can I refinance my first mortgage?

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Can I refinance my first mortgage?

In 2010 I was behind on my 1st and second mortgage and was in the process of
modification with my 1st. The lender holding the second, having little chance to
benefit from foreclosure, decided to sue civilly and were awarded a judgement. I
subsequently filed chapter 7 and included the judgement, but reaffirmed with the
1st mortgage. The second still has a lien, but no way to collect until I sell.
Can I refinance the 1st without satisfying the lien held by the second lender?

Asked on May 25, 2017 under Real Estate Law, Wisconsin

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Legally, you can do this, but in practice, you will not find a lender (or at least are unlikely to find a lender without paying a premium) to do this. When you "refinance" a loan, what you are really doing is paying the first loan off with a new loan  at better terms. Since that new loan will be newer than the currently existing 2nd mortgage, the new loan will be lower priority than the 2nd mortgage: the 2nd mortage will effectively become the 1st priority mortgage at that time. Therefore, anyone who refinances the current 1st mortgage will lose 1st mortgage priority and will have less protection for their loan, since it wil not be paid, if the home were sold or foreclosed, until the current 2nd-priority loan is paid. Therefore, since they have less protection, they are unlikely to do this, or at least are unlikely to do this without you paying them some premium (e.g. a higher interest rate) to compensate them for the risk, which reduces or even eliminates the incentive for you to do this.


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