2nd position lien-holder / foreclosure issue in NJ

4 Replies

Hello all,

I'm a member from AZ, but have a brother in NJ with a complicated issue. Small house, $6000 left on mortgage with 1st bank. Equity line of credit with 2nd bank. Brother doesn't want the house any longer, can't afford the 2nd's payments.

On the 2nd - outstanding balance is $87k, which includes $17k of taxes and penalites (the 2nd just paid to stop a tax lien foreclosure). House not worth that. Short sale was in works since Oct 2013. Buyer found, offered of $42k accepted, and he hung in there the whole way. 1st agreed, at the last minute, 2nd says "$20,000 more from buyer", now buyer has walked and short sale cancelled.

My recommendation was to tell the 2nd to go pound sand. FMV is about $55-$60k. Maybe $70k tops. Total rehab or tear-down, great lot, near beaches in Cape May County, but not AT the beach and not in Cape May.

I think the options in NJ are: Start a new short sale, let the 2nd start foreclosure, or deed-in-lieu. If if it was me, I think I would write a letter to the 2nd: "Don't want it, you can start foreclosure or do a deed-in-lieu, but don't call me again." Brother's credit already hosed, so he's not concerned about any fall-out there. Primary residence seems to be protected - 1st mtg current with another bank, 2nd (equity line) current. The only thing - the equity line on his residence is with the same bank that has the equity line on the problem property.

What are the valid options for him in NJ? Can the bank with the equity line on both properties somehow tie up his primary residence in all this mess?

Many thanks in advance for any suggestions or information anyone can provide. Brother at the "I don't want to know anything else about it." point.

I would have your brother speak to an attorney as a lot will have to do with the loan documents he signed. Was there cross collateralization on the loan which will affect the primary residence? Also the second could get a foreclosure and then a deficiency judgment which would become a lien against the primary residence. So I would think it's in his best interest to do a short sale where he could at least negotiate any potential judgement after the fact. But if he just lets it go and let'sthe property go to foreclosure then he has no leverage whatsoever when it comes to that deficiency judgment. That's my opinion.

You can tell the 2nd to pound sand, but the buyer cannot get a clean deed until the 2nd is paid and if the 1st is only $6K, the 2nd can just pay the 1st pennies on the dollar for a lien release. If they get a judgment, they can attach anything he owns. He should try to work out a payment plan with the lenders.

Joe Gore

Thanks for the advice. Is deed-in-lieu an option here?

A DIL is up to the 2nd to accept.  But, if they weren't willing to take about $33k, they're probably not interested, but you can always ask.

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