How to Determine if Your Home Loans are Unsecured

To determine whether the loans on your home are secured or unsecured (as a factual matter) begin with your home's value -- be optimistic, but sensible. Then subtract the amount of the first mortgage. If the result is zero or less, foreclosure is not a viable remedy for the other lenders because there is no equity left in the home to pay them off. If, after subtracting the amount of the first mortgage, there is still equity left, next subtract the amount of the second mortgage. If the result is zero or less, the equity won't pay off a third mortgage.

For example, assume that your home is worth $400,000. You have a first mortgage of $350,000, a second mortgage of $50,000, and a home equity line of credit worth $25,000. When you subtract the first and second mortgages from the home's value, you get zero. There isn't any equity left over to secure your home equity line of credit. So, if you stop making payments on the home equity loan, the lender has no incentive to foreclose -- it won't get a penny because your equity will pay only the first and second lien holders.

Unfortunately, it's not always that simple. Sometimes a second or third mortgage is partly secured and partly unsecured. (If, in the example above, the second mortgage was $75,000, then $50,000 would be secured and $25,000 would be unsecured.) In that case, a foreclosure by the junior lien holder might recover some of the lien but not all of it.

For more information on dealing with foreclosure, negotiating with lenders, and handling other financial troubles, get Solve Your Money Troubles: Get Debt Collectors Off Your Back & Regain Financial Freedom, by attorneys Robin Leonard and John Lamb (Nolo).