A second mortgage refers to a second chance that the borrower is given if the borrower defaults on a first mortgage. This statement is true or false?

• A. False
• B. True
• C. Not stated
• D. Both

Answer: (A)

A second mortgage is a second lien on the same home, meaning it’s an additional loan secured by the property and gets paid after the first mortgage in the event of a sale or foreclosure. It is not a special remedy or “second chance” granted if you default on the first loan. The first mortgage has priority, so if the borrower defaults, the lender holding the first lien is paid first from any sale proceeds, and the second lender is only paid with what's left. If there aren’t enough funds to cover the first loan, the second mortgage may not be fully repaid.

So the statement is false because a second mortgage isn’t a mechanism for a borrower to receive a second chance upon default; it’s simply a secondary loan secured by the same home, with a subordinate claim to repayment. Common examples are a home equity loan or a HELOC.