First Mortgage and HELOC (loan, foreclosure, credit score, second mortgage)

[jaycool777]

I need experts to help me out on this issue. Currently, we have a house under my parents' name as parties of the first part (GRANTORS) and my parents' names + my name as parties of the second part (GRANTEES). We got the first mortgage under my parents' name and the second mortgage which is HELOC in this case under my name. I am wondering what happens if my parents can not make payments on the first mortgage and in worst scenario what if our property goes on to foreclosure? Would it affect my credit score as well? Can I still maintain my payments to HELOC even though our property goes on to foreclosure? Is there a way that I can avoid situation like not hurting my credit?

[jeffselan]

Jay:

I have no answer to that but I am very curios to see what the others say.

One word of advice, keep enough of a credit line on your HELOC or enough in savings to make 12 payments in case it has to sell.

[ChipL]

Interesting question. As far as your credit goes, obviously your parents not making payments on the 1st mortgage won't directly affect your credit. My concern is the latter part of your scenario....what if the house goes to foreclosure?

A few things could happen at the sale.
1) It could sell for what's owed on it and the 1st and 2nd liens are satisfied, in which case there should be no foreclosure issues showing up on your credit.
2) It could sell for less than what's owed, in which case the 2nd would be paid either partly or not at all.
3) Or it could end up being owned by the bank holding the 1st as an REO.

I'm not 100% sure, but my opinion would be if 2) or 3) were to happen, you might see some negative effect to your credit since the 2nd mortgage was not satisfied per your original loan agreement.

[renriq02]

normally, both parties will foreclose on the property.

When the first forecloses....the 2nd would want to get paid as well.

If your parents foreclose...then the 2nd will become due in full.
The reason is that they wont be able to satisfy this lien at the courthouse.
You hardly ever hear of a foreclosure receiving full value or paying off all liens.

You will have two options....pay the full amount due or foreclose.
Whether the HELOC's holder will allow you to have a monthly plan is up to them, and may vary per lender.
The correct answer should be on your HELOC agreement.