Second mortgage foreclosure...

Asked by Carolyn Boyle, Hanover, PA Sat Jun 12, 2010

A friend of mine gave up her home with a deed in lieu of foreclosure. The home subsequently went to foreclosure and is listed-- and now under contract- with another Realtor. She is moved out and thought that was the end of that-- then just got a demand notice from a second mortgage company for 57,000! I told her to see advice from a real estate attorney. What happened there? Wouldn't the banks have searched out liens and put that on the foreclosure as well? What happens if/when it goes to settlement with the potential buyer?

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Dp2, , Virginia
Sat Jun 12, 2010
Most likely, if the second charged off their loan, then they probably sold it too.
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Carolyn Boyle, Agent, Hanover, PA
Sat Jun 12, 2010
Thanks everyone...I called my friend to let her know these answers and she said her credit is showing the account is closed. The 1099 she got shows the whole loan amount-- including the second mortgage, but does not specifically give the loan numbers- but the amount that was charged off was for the first and second. So, is it possible they agreed to the charge off and now either are coming back to her for the money or maybe someone goofed and sent her the letter in error? Oh, and the property did go to settlement with a new buyer-- so why wouldn't the lien have shown up when they did the title search?
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Hannah Flieg…, Agent, Larkspur, CA
Sat Jun 12, 2010
Hi Carolyn,

The lender in second position can remove their interest on the collateral and then place that interest onto the borrower directly. Perhaps prior to the foreclosure they removed their lien or prior to Deed in Lieu. They are now pursuing the borrower, your client for the debt. That debt is a commodity that has a value to a vulture fund or a collection agency. The lender will attempt to collect that debt for a while probably 3 months and then they will either sell that debt which is a commodity. Or they will go to a court and get a deficiency judgment against the borrower in effort to garnish wages, go after other property, etc. They can also sell this deficiency judgment to a collection agency and the fact that the debt is not attached to a deficiency judgment it is a valuable commodity to sell or trade.
Your client would want to check with their state for the statue of limitations which is 10 years in most states. Finally, your client has some choices, one they can settle the debt, two they can file a bankruptcy if they qualify and would like to shake the debt that way. This is why bankruptcies are so common with foreclosures and real estate because the amout of debt is so high.
I sure hope this answer helps. Good luck!

Hannah Fliegel, FICO Pro
0 votes
Keith Manson-…, , Milwaukee, WI
Sat Jun 12, 2010
People have to be very concerned if they have a second mortgage and get foreclosed. If the second does not charge off the loan, they have the right to file for a judgement that is collectable. So if the person that was foreclosed, the bank has the right to go after assets or future earnings.

The reason the dil was not done, is because the title has to be clear except for the first mortgage.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee
0 votes
Dp2, , Virginia
Sat Jun 12, 2010
DIL works effectively when there's only 1 lien on the property, because only one lien holder will get the deed. In your friend's case, the second lien holder exercised their rights, foreclosed, and sounds like they obtained a deficiency judgment.
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Maureen Cody, , Charleston, SC
Sat Jun 12, 2010

I've been hearing of banks forgiving for the transaction to sell the home, but still coming back to the seller for the money "forgiven" or a portion of it. It seems like every foreclosure or short sale is so unique - which is why I think your friend should follow your advice and seek out an real estate attorney experience with foreclosures.

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