Foreclosure in Vallejo>Question Details

Norie Dizon, Home Buyer in Vallejo, CA

I have two loans(1st and 2nd mortgage)if my house will be foreclosed will I still be responsible for the 2nd

Asked by Norie Dizon, Vallejo, CA Mon Oct 20, 2008

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Norie:

The answer to your question is "it depends". The first post went into detail on how and why it depends, and I would add that you might want to check with an attorney about the specific facts of your case.

This "it depends" answer is why I am an advocate for NOT sitting idly by and letting you lender foreclose. Take the initiative to contact the lender and either
1. work out a loan modification that you can live with or
2. list your property with a qualified real estate professional who can help you negotiate a short sale.

In either negotiation, you may be able to convince your lender to accept the results as “payment in full” on your obligation. This also allows you to retain some level of control over your home, your promise to pay, your dignity and your credit. Hopefully, you are not so far into the foreclosure process that you cannot take advantage of your other options. Contact me if you want to discuss this further and Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
0 votes Thank Flag Link Tue Oct 21, 2008
Hello Norie. The answer to your question really depends on who forecloses and what type of loan the 2nd mortgage is. If the lender in first position forecloses by way of trustee sale (the majority of CA foreclosures are done that way), the junior lien holder's security interest is wiped out. However, that does not automatically mean that you no longer owe the money to the second lender.

Whether the lender whose security interest was wiped out can still come after you will depend on whether the junior loan was a purchase money loan (i.e., obtained to purchase the property) or a "hard money" loan. The link below is to an article that explains the CA anti-deficiency rule and there is also a paragraph about what happens when the "hard money" lender's security interest is wiped out by the senior lien holder's foreclosure. The section to which I am referring states in pertinent part:

"For example, if a hard money loan was originally secured by a junior trust deed and then was subsequently wiped off the title to the property by the foreclosure of a senior lien, the junior loan would still be outstanding and due. But it wouldn't be secured by a specific trust deed to any real property any more. In that instance the lender could go to court and sue the borrower for payment on the defaulted promissory note. Once the lender received their money judgment from the court they could record an abstract of it at the county recorder's office and it would automatically attach, by operation of law, to any and all real property in the name of the judgment debtor. In California money judgments earn the legal rate of interest of 10% per annum. They are good for ten years and are virtually renewable over and over again."

If the junior lien holder forecloses, the junior lien holder would have to judicially foreclose to preserve the right to sue for a deficiency judgement. If the junior loan was a purchase money loan, a deficiency judgment is not an option because of the anti-deficiency laws that apply to purchase money loans. If the junior loan is a hard money loan, the lender has the option to choose between trustee sale or judicial foreclosure. These days, foreclosures by junior lien holders are rare because most properties don't have any equity and when the junior lien holder forecloses, they get the property with the first loan still in place. Since there's no equity, they have nothing to gain from taking a property back that they can't sell for enough money to pay off the first and recoup the money for the second loan. In the unlikely event of a junior lien holder foreclosure, the hard money lender would have to choose the more expensive judicial foreclosure route to preserve the right to pursue a deficiency judgment. If the hard money lender proceeds by way of trustee sale, they can't sue for a deficiency judgment after the trustee sale.

I hope this answers your question.

Best of luck to you.
0 votes Thank Flag Link Mon Oct 20, 2008
Ute Ferdig -…, Real Estate Pro in New Castle, DE
MVP'08
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