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I was talking to one loan agent lately about getting an investment loan, she was trying to convince me to mortgage my house but my house has been mortgaged already.

She was saying "let us not worry about it, we can mortgage it to a different bank".

Logically, I do not think this is legal.

What are your thoughts?

Update: My property is fully mortgaged, so basically this agent was trying to double mortgage it to a different bank.

  • 4
    Its not a 100% of what you are asking. Does you current home have a mortgage on it now or has it been paid off? If the former how much equity do you have in the home? – Pete B. Dec 7 '16 at 20:34
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    Questions about law need to have a country specified. New Zealand is listed as your location in your profile, so I've tagged that in your question. If you are asking about a different location, feel free to edit. – Ben Miller Dec 7 '16 at 21:45
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    In theory, there's no reason you can't. But you have to fully disclose the existing mortgage to the new party (and, dependnig on your contract, get the permission of your current mortgage holder). – Kaz Dec 8 '16 at 10:05
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    Is it possible that she wanted to refinance your mortgage with a different bank (for which she would get a pretty large commission while not necessarily improving your situation)? – Tomáš Kafka Dec 8 '16 at 12:14
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    @JoeBlow I wouldn't say that OP is trying to get away with anything. OP sounds skeptical and like an honest person asking for a second opinion; it sounds like the agent is sketchy. Regardless, we should judge the question, not OP's motives. (I agree with your illegal vs. contracts point.) – Zach Mierzejewski Dec 9 '16 at 13:41
48

It depends on how much equity you have in your home.

Scenario 1: Your home is worth $100K, and your current mortgage is for $100K (or more which means you are underwater.) In this case you can't get a 2nd mortgage because:

  1. It's not legal to use the same collateral (e.g. some or all of your house) for multiple loans without all parties knowing about it.
  2. If you let the parties know, then whoever is not first in line to receive the collateral certainly won't agree to it, since the collateral is not yours to use. (The existing mortgage would already have legal claim to it.)
  3. You couldn't do it even if you tried because any real bank will do a title search to discover if you are trying to do this, before giving you any money.

That being said, you can use different portions of equity in your home as collateral for multiple mortgages, as long as none of the equity overlaps, but you may need permission from the primary mortgage bank first, for example:

Scenario 2: Your home is worth $100K, and your current mortgage is for $80K meaning you currently have $20K in equity. It is possible to get a 2nd mortgage or home equity line of credit for $20K.

As a side note, if your loan agent is telling you to use a different bank, it sounds like she is trying (and willing) to do something shady. If you are in Scenario 1, I'd find a new agent.

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    You don't need permission from the primary mortgage bank, since their rights are completely unaffected. – David Schwartz Dec 7 '16 at 21:22
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    @DavidSchwartz - I think that's probably true in general, but it depends on the contract. I'm pretty sure I've heard of primary mortgages forbidding secondary mortgages for some reason, at least without permission. – TTT Dec 7 '16 at 21:38
  • @DavidSchwartz - a quick search isn't yielding much, but this seems to corroborate my statement: teamparadigm.ca/i-need-permission-for-a-second-mortgage (I suppose my use of the word "may" shields me even though it's probably a rare case...) – TTT Dec 7 '16 at 21:45
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    Run, don't walk from this agent. – Paulb Dec 8 '16 at 10:59
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It's legal. That's what a home equity loan is, for example. More generally, what you're talking about is a "second mortgage". It has no effect on the primary mortgage that you've already made to your bank; they're still secured, and if you get foreclosed, they get paid, and only if there's something left over does the second mortgage holder get anything. That's why second mortgages are more risky than first mortgages, and why you might have trouble finding someone willing to do it.

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    Even though the OP did not specify it, I assumed from the tone of the question and the suggestion of "a different bank" that they are talking about overlapping collateral for different mortgages. Like I said in my answer, it is legal if you have extra equity. – TTT Dec 8 '16 at 15:34
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    @TTT - as I said, a second mortgage has no effect on the primary mortgage. "Overlapping" would impair the security of the primary mortgage holder, so can't be done without the primary mortgage holders consent. – Pete Becker Dec 8 '16 at 15:55
  • So then that would make it illegal, not legal. (I'm interpreting the question as re-mortgage the entire house with another bank, without telling either bank about the other mortgage.) – TTT Dec 8 '16 at 15:58
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    @TTT - adding a second mortgage is not illegal; pretending that the primary mortgage does not exist in order to induce a lender to loan money under the impression that they're getting a primary mortgage is fraud. "we can mortgage it to a different bank" may simply indicate an assumption that the primary mortgage holder wouldn't be willing to increase the mortgage or add a second because it puts more of their money at risk and they aren't willing to commit to that; another bank may be more willing to take on a second simply because they wouldn't have as much money at risk. – Pete Becker Dec 8 '16 at 16:06
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    You can even get second mortgage from the same bank and primary mortgage. You will just be paying higher premium (because it is more risky). Like you can get first mortgage for 80% of house value and second for 10% or 20%. Second is cheaper than mortgage insurance, and easy to convert to home equity loan. – Peter M. Dec 8 '16 at 22:49
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A mortgage will show as a lien on your property. Say your home is worth 400,000 (money units) but you only owe 200,000. A lender may be willing to be second in line, lending you another 100,000.

8

In addition to all the other answers, here is a New Zealand Herald article from earlier this year about second mortgages, confirming that it is both legal and common in New Zealand.

Whether or not it is a good idea in your situation is another question.

0

The loan agent surely knows that having a combination of loans greater than the value of the property (less some margin) is illegal, but also impossible. Your first mortgage, mechanic's liens, tax liens, and so forth are a matter of public record. In most states the records can be viewed online, by anyone, for free. The title search prerequisite for getting the second mortgage looks beyond the low hanging fruit for things like aborigines claims for parcels of land that include your property. The loan agent is trying to sell you a home equity line of credit. Almost everyone gets one after building up some equity. There's often no closing cost and it's not necessary to ever use it. Keep it for emergencies.

0

Banks in New Zealand tend to take a lien that is higher than the amount of the loan, so that your only option for a second mortgage is with them. ASB wanted 50% more than the value of the loan when I had my mortgage with them.

Of course, with house price inflation the way it's been in NZ, the value of your house may have outstripped the lien anyway, and you can mortgage the rest of it with anyone you like. I suspect your lawyer will need to inform the other lienholder, but you don't need their permission.

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protected by Chris W. Rea Apr 18 at 2:21

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