If a homeowner’s property goes into foreclosure, sometimes there are remaining funds after the mortgage debt and foreclosure costs are paid, called “excess proceeds.”
In some cases, however, there may be an unknown lien, referred to as a “ghost lien,” that wipes out these funds for the homeowner.
The Back Story
Between 2000 and 2008, during America’s housing boom, 100% financing was common. Some of the housing loans had two mortgages. The primary mortgage, at 80%, was the first lien, and a “piggyback loan” (which often had a higher interest rate) made up the remaining 20% as the second lien.
It is no surprise that many mortgage companies failed in the 2008 housing market collapse. During this time, first-lien mortgages typically went into foreclosure, and some lenders charged off the second liens, categorizing them as “uncollectible debts” and selling them to debt collectors.
Because some of the lenders and debt collectors did not follow up on these liens with the homeowner, some of the borrowers made an assumption that they no longer owed the money on the second lien (or just forgot about them). But they were incorrect.
Second Liens Can Demolish Excess Proceeds
If one of these properties goes into foreclosure on the first lien, even years later, the truth about the second lien may come to light.
Debt buyers, who did not seek to collect the funds they were due until the foreclosure proceeds became available, then file claims with the trustee against the foreclosure sale proceeds. The sheer number of years of accumulated interest on the second lien can wipe out any excess proceeds that the borrower had hoped or expected to receive.
Next Step
If any of your properties have been foreclosed on, check with the Lonergan Law Firm PLLC to determine if there are any remaining debts so you can take the appropriate action.
Gaylene Rogers Lonergan
Board Certified Residential and Commercial Real Estate Attorney
Lonergan Law Firm, PLLC
12801 N. Central Expressway, Suite 150, Dallas, Texas 75243
(214) 503-7509
grogers@lonerganlaw.com | LonerganLaw.com
© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2025. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.
