Foreclosure Lien order priority

8 Replies

Hi,

I am new to foreclosure investing, and i tried to analyze and study the title search. Here is the situation:

1) Buyer  bought a property and have two mortgages (Deed of Trusts) on the property from the same lender

2) Buyer decided to refinance with the new bank (a new Deed of Trust), but the new deed of trust said this is a renew or extension of the first lien.

3) The previous bank release the lien on the 1st mortgage.

In this situation, does it make the 2nd Deed of Trust become the first lien since it record before then 3rd Deed of Trust?

you answered your own question.. see number 2 in your description.. IE its a renew of the first loan.

but in practice if you pay off the first the second then becomes the first.

I don't think that you can get a right answer without actually providing the paperwork in reference.

In general: Priority goes by book and page number. If one lien got released then it will have the book and page of original lien that was released. 

If 2nd lien wasn't released then it has priority over all other liens recorded after 2nd lien.

If the third lien references the 1st lien as an extension (or modification), then it is very likely that either someone made a mistake releasing first mortgage or they released 2nd mortgage.

I am sure title co can help you out decipher this 

@Khanh Tran   Is this a Texas property?  If so, was the second lien from part "1" a home equity loan or was it part of the original loan package?

Does the deed of trust from part "2" mention that it is a home equity (or cash out) loan?

Also was this a homestead?

I think @Roman M. is right.  Without the documents, I cannot tell if there was a recording error, if the second lien stayed in second position, or what exactly happened?

It is strange that the second would not have been released first.  It would normally have the higher interest rate.

Here is some general information...

www.ccsb.com/Publications/Texas_Property_Liens.pdf

@Jay Hinrichs : Yes, it is a renew of the first loan, but i didn't know that a new Deed of Trust from one bank can renew the Deed of Trust from another bank, so it can move up in the priority.

@Roman M. @Michael Biggs @Tom Gimer : The documents mentioned about lien priority, but it is weird that a buyer borrow two loans from the same bank on the same date, and later another bank could willing to finance a big amount of money to the buyer to paid off the 1st loan.

@Khanh Tran I don't see anything weird about that... it happens all the time.

And perhaps you didn't understand my comment about the auto-sub. If the new loan and the old 2nd meet certain criteria (basically the new loan being a rate and term refi of the 1st, the 2nd being fairly small, closing costs being low) then the 2nd could be automatically subordinated to the new 1st, regardless of the sequence they were recorded. Look into it.

Updated about 2 months ago

I forgot to add -- look for a recorded subordination agreement as well.

Let me guess...  they refinanced while values AND rates were still low from the great recession?  If the values had increased they might not have needed the second.

Originally posted by @Tom Gimer :

@Khanh Tran I don't see anything weird about that... it happens all the time.

And perhaps you didn't understand my comment about the auto-sub. If the new loan and the old 2nd meet certain criteria (basically the new loan being a rate and term refi of the 1st, the 2nd being fairly small, closing costs being low) then the 2nd could be automatically subordinated to the new 1st, regardless of the sequence they were recorded. Look into it.

Thank you. Learning something new everyday.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.