2nd deed of trust filing

5 Replies

Hey BP, I am setteling a lawsuit and a portion of the settlement is that I am securing my settlement with a 2nd trust deed on a property the defendant owner.  To paint the picture, the building is worth approximately $4 million.  He has a traditional mortgage on it for $1.25 million.  My 2nd trust deed will be for the amount of ~250k.  The property is located in Orange County CA and I know of what I need to do to file the 2nd deed (my attorney is preparing all of the documents).  My question is, do I have to notify the 1st mortgage or is that the responsibility of the owner of the property?  

Not to worry, I am taking the steps that if he defaults on my 2nd trust deed to go through the foreclosure process but I want to make sure after I file it correctly that I am not missing anything I may need to do (such as notify the 1st or anything else).

Any recommendations or tips is appreciated!

The filing of the 2nd DOT will constitute constructive notice to the 1st lien holder, so you don't need to contact the 1st mortgage holder. Keep in mind that if the owner quits paying the first, the 1st mortgage balance can go up due to legal fees, interest, fees, etc and push your lien position back. If the property owner refinances the property, the first lien holder would need to either pay you off or get you to sign a "subordination agreement" to allow them to resume their first lien position. I assume your attorney has run a title search on the property to assure you that you are truly in 2nd position? I do hope that helps.

@Jonathan Orr

Good advice from @Doug Smith .  You don’t have to notify the 1st lien holder, however, I have a different take.

If his traditional lender is a giant bank, BofA or the like, then don’t bother.  If it’s a smaller bank, perhaps something local or private, then your best friend could be this lender.  If you can get friendly with them a bit they might notify you in advance if there are any irregularities with their loan and give you some time before they foreclose.  You should promise to do the same.

Also, some lenders don’t like seconds.  I hope you’ve seen a copy of the 1st DOT and confirmed that it will allow a second without invoking an option to call the loan. Our DOT for example, allows a subordinate loan but we require notice in writing. Don't rely on your new borrower to do this, if required.

@Doug Smith @Jeff S.

I appreciate the tips.  It is a small lender. After all paperwork is done, we are going to be "making friends" with the 1st to make sure we are in the know.  As for the Title search, it has been done and we have confirmed that we are truly the 2nd position. Since this is a settlement of a lawsuit the attorneys have confirmed we are not going to be triggering anything.  We will have to see if the borrower keeps up with the mortgage or not (That is a whole different conversation).

Thank you again!

Account Closed we had settled and filed a 2nd trust deed against a property and had it recorded so it’s set in stone until it is paid off. They have kept up with payments to both the 2nd and the 1st, so no foreclosure right now. 2nd is in place so if it ever comes up and a payment isn’t met we have it covered