Foreclosure in Whittier>Question Details

Carlos Orozco, Real Estate Pro in Rancho Cucamonga, CA

Can a 2nd lien holder Foreclosure (worth $50k), when homeowner owes $400K on the 1st and home is only worth $275K?

Asked by Carlos Orozco, Rancho Cucamonga, CA Mon May 9, 2011

I have a friend that recently received a Foreclosure Notice from a 2nd on his home which he owes around $50k, thus, he owes about $400K on the 1st, yet the home is only worth approx.$275K-300K!? yet they're not willing to settle and I told him if they put it up for Trustee Sale that no-ones going to but a home /or note that underwater and that they'd have to make payment of the 1st or pay-off the $400K! Isn't that true? I haven't encountered a second lien holder foreclose on a home with a 1st that's way over FMV!? what are his options here!?

Help the community by answering this question:


It's possible he received the foreclosure notice from the 2nd because he stopped paying the 2nd & continued to pay the 1st lien. OR he's further behind on the 2nd than on the 1st & that's why the 2nd filed their notice 1st.

You state the 2nd is "not willing to settle"? I have negotiated short sales that were referrals from other Realtors, I've also negotiated short sales FOR Realtors Own properties. I would pay you a referral commission if you'd like to work it this way.

The 2nd will settle. But first we need to find out what type of 2nd your friend has. Was it part of the purchase money loan or was it an equity loan from which he bought (whatever) from? Knowing that is going to tell us what the 2nd TD will want in order to accept an offer as "payment in full" or not. Luckily it's only $50K.

Let me know if you'd like to discuss this further. Email me or call me directly.
562-430-3053 cell
Realtor Since 1996
Short Sale Expert
1 vote Thank Flag Link Mon May 9, 2011
You friend is a clear candidate for a short sale. We will negotiate with all lien holders and try to reduce his debt. A short sale will also keep foreclosure off his credit. You can list the house for him, and we would do the negotiation.

We are a professional short sale service and would be happy to explain the process to you. Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
Serving all 50 states

MARS Disclosure for General Commercial Communications
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
1 vote Thank Flag Link Mon May 9, 2011
The answer is yes they can foreclose. In probably most cases, you won't see this situation. The inferior lien holder is left in a position that there is nothing to recover to satisfy the lien. Though, there are second lien holders who file foreclosures. It is common enough that you occasionally read about the bidder who didn't realize they had bid on a second lien and wind up trying to negotiate their way out of a contract.

Your friend should consult a lawyer who can discuss the available options.
0 votes Thank Flag Link Thu Jun 28, 2012
maybe somone that can help will see, take are Nikki
0 votes Thank Flag Link Mon Jun 25, 2012
One last thing...yes it makes no sense but it does happen.. its happening to me now. So why... I was told that the bank I had my 2nd mtg was closed down by FDIC and purchase from FDIC by another bank.. and that if the new bank made any deals with the old loans and the deal failed, that that they could not colllect from the FDCI on any of them.. inturn..... all or none on the cliam...package? Rummor...?? I don't know? But my 2nd mtg sure is going to take a loss- so is there more at hand that I have NO right to know. Wish I did know I know it will not help but I'm sending letters to my local news and the banks board, FDIC... and .
Louisiana Office of Financial Institutions..
0 votes Thank Flag Link Mon Jun 25, 2012
Well I live in Louisiana, and everything Carlos just said give or take a few $ just happen to me. I"m in good standings with my 1st mtg worth $200k, my 2nd mtg is $90 the value of the property is less than $200k and MY 2ND MTG is forclosing on me..paying off the 1st and forclosing.They will incure more loss and they do not care. It does happy Carlos.... Its happing to me and my family they are taking our home!
0 votes Thank Flag Link Mon Jun 25, 2012
Dear Carlos, The 2nd TD can foreclose to protect their interest, but they would do so "subject to" the 1st and in a valueless . This means that even if the 2nd takes over the property, they would still owe the $400k to the 1st in addition to the second trust deed that now holds no value.

It makes no sense for a second trust deed holder who holds paper to a note that carries no value to file for foreclosure. They would need to hold onto that property for a mighty long time before the market value finally begins to cover a portion of their investment, much less make it whole again. All the while they would be financially obligated to the first trust deed's monthly payments and loan balance.

I would certainly consult with a real estate attorney on the details of your rights in the case before making any concrete plans on how to pursue defending this action.

Good luck!

Diane Wheatley, Broker
0 votes Thank Flag Link Fri May 27, 2011
Any junior mortgages, 2nd or 3rd trust deed liens may foreclose in most situations if the terms under the promisorry note have been breeched, for example, if the 1st mortgage payments are not being made, taxes are dellinquent, etc. In the situation you shared, it does not seem to make sense that the 2nd TD would want to foreclosure because there is not equity to protect his interest. However, like most things going on in this current real estate and lending market, the actions of lenders dont make a lot of sense to us common-sensers. Hope this helped a little. I have been lending private mortgages for almost 20 years and have serviced hundreds of loans, and have seen many crazy forelcosure scenarios. Email or call me at 714-747-1912 with any further questions. Jay Green
0 votes Thank Flag Link Mon May 9, 2011
The 2nd TD can foreclose to protect their interest, but they would do so "subject to" the 1st. This means that even if the 2nd takes over the property, they would still owe the $400k to the 1st. Either way, the home owner does NOT have any equity and should consider a short sale to have both lenders agree to discounted payoffs, and release the homeowner from all liablitiy.

Call me if you have any other questions - my parents still live in Whittier and I specialize in Short Sales in San Gabriel Valley.

Bill Mota
626) 233-0190
0 votes Thank Flag Link Mon May 9, 2011
The 2nd can certainly foreclose and often does to secure their second position, if the first forecloses before the 2nd forecloses, the 2nd gets wiped out, they must think there is some sort of value there to recover something. The 2nd may have already worked out a deal to pay off teh first at a discount so the 1st gets out without the exoense of a foreclsoure. They should defiantely try a short sale at this point .…

Please see my blog with tips on getting a short sale approved
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0 votes Thank Flag Link Mon May 9, 2011
Hello Carlos,
That's a bad situation for your friend. Sorry to hear about your friend's troubles.

Your friend should obtain legal advice from a lawyer. It is curious that a second lien holder is acting first. Typically, the second lien holder stands to gain nothing in a foreclosure. Not knowing the full circumstances, it's hard to say.
0 votes Thank Flag Link Mon May 9, 2011
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