Real Estate Investor · Baltimore, MD · Member since 2008 · 1k+ posts · 268 votes
When 2nd lien position mortgages are wiped out at the first mortgage foreclosure, do the banks (note holders) have a right to file a deficiency judgment agaisnt borrower in order to try and recover their loss (at least partially) ?
If yes, do they normally do it or rather charge off the amount?
Hi, this varies state to state. Some states allow redempyion by junior liens, and at different amounts. Homeowners in some places will have deficiences from all liens. The second is not extingusihed, it's the secured position that is lost. Check with your state;s statutes for perfecting, priority and release of liens.
Hi, this varies state to state. Some states allow redempyion by junior liens, and at different amounts. Homeowners in some places will have deficiences from all liens. The second is not extingusihed, it's the secured position that is lost. Check with your state;s statutes for perfecting, priority and release of liens.
This is accurate and the most important part. The note simply becomes unsecured at that point and the lender can charge off or sue for a judgement.
Thank you Will - follow up question:
suppose the state allows the noteholder to file for deficiency judgement after the foreclosure, is that an easy process (i.e. just a matter of filing the paperwork at the courthouse) or a long-drawn process which involves hiring a lawyer, serving the defendant and dragging him to the courthouse?..
I believe a lot of times the bank that was in 2nd position will sell off the now unsecured note for pennies on the dollar and the new owner of the note will try to collect.