| First of all, the buyer needs to make sure his lender will approve him for a loan with a combined Loan to Value (CLTV) of over 100%... EVEN IF the 2nd mortgage is held by you.
If the 1st mortgage lender forecloses, they are required to notify you. However, they have no concern as to the balance on your loan. After the sale of the house, the funds are first used to pay the 1st mortgage balance and legal fees. Anything left over (if any) is used to pay off your balance.
If you foreclosed, then you control the foreclosure, but everything else still applies. Whatever money is recieved must go first to pay the first mortgage. Anything left over is yours.
Bottom line, if you are an individual holding a 2nd mortgage, you are in a high risk investment so be sure you charge an interest rate that is appropriate to the level of risk.
Finally, loans can be done that go up to 107% of the purchase price if the borrower has good credit. | 
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