Junior Lien Issue On My Foreclosure Purchase...

Tax, SDIRAs & Cost Segregation
12yFollow

Junior Lien Issue On My Foreclosure Purchase...

Dustin DuFault
Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes

Hello - I'm hoping someone on BP can point me in the right direction.

I bought and rehabbed a home at a foreclosure auction. I now have the home under contract for sale, but it appears I overlooked an issue with a junior lien on the property. I'm looking for advice on how best to proceed! 

Here is the situation...

The home had two liens against it - the original mortgage, and a line of credit. Both liens were held by the same mortgagee.

Lis Pendens were filed on both liens within a couple of months of one another. The senior lien then reached judgment, and went to auction, where I bid on the home and won. I assumed (incorrectly, of course, I'm a foreclosure newbie), that since the bank on each lien was the same, and that I was bidding on the action on the senior lien, that the junior lien would be resolved automatically.

My title agent is stating that since the mortgage company did not name themselves as a defendant on the senior lien lawsuit, that their junior lien is still outstanding and must be resolved before we can sell the house. So that’s the question - how best to proceed???

I think I have two options - I can contact the lender and see if they are willing to give me a lien release. The other option would be to file a lawsuit, which would take time and money, obviously. If I do this, would it be considered a quiet title action, an additional foreclosure, or what? Also, does anyone have tips on reaching the right person / group at the bank to discuss this? It's a regional institution.


Thanks for your help!

0Reply
252 views

Most Popular Reply

Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y

Hey @Chad U. .  Yes, even though the same lender held both mortgages, they as the junior mortgagee would have to be listed as an additional defendant.  There really is no basis for a suit against the lender, the first or the second.  You are now the title holder, not a lien holder.  Some will suggest a Quiet Title suit, but that has no merit here, and could only serve to possibly, just possibly, get the 2nd mtg holder to the negotiating table, or so that's the theory of some.  I have seen instances where one lender holds the first and second on a property, and forecloses on the second, but not the first.  I wonder if that's intentional...hoping for some bidder's confusion or ignorance....or just happenstance.

Trying to negotiate out the second seems the best approach.  On this occasion, I would probably actually recommend having your RE attorney do it.  He can speak legalese, rattle some sabers, etc. in regard to proper foreclosure procedures, yadda yadda yadda.  Hopefully the foreclosure file contains the actual loan number which will help in identifying the specific loan.

3Reply
See this reply in the discussion

57 Replies

Jump to latestLatest
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    @Account Closed 

    A quick google search came with this as the site for doing case searches in Nassau county.  You'll have to play around with it. You're looking for Civil (not criminal) Court Records, likely.   It will be easier with case no.s probably, but you may can search by name.  If it's similar to our county site, you can see all the events, motions filed, rulings, etc. in a particular case. you won't be able to see any pleadings or doc.s though.  I believe Dustin said the 2nd had a foreclosure/LP filed.  If so, and you actually go to the Clark's office, you can see the file, and it should have a principal balance being foreclosed upon in the Complaint.  This won't include accrued interest, fees, etc.

    By the way, a trip down to the courthouse and reading the actual file, has saved my bacon a couple of times.  I've seen the first mtg start foreclosure, the second mortgage holder intervene, proceed to judgment with the Same case no. and Same case heading (1st mtg.  as listed Plaintiff) and the judgment/proceeding is for the Second mtg.!  Now, That's a trap!

    http://www.nassauclerk.com/onlineaccess.cfm

    3Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    @Wayne Brooks 

    Thanks Wayne. This is actually for Duval county, but I'm familiar with their site as well. It's similar in that you see motions, etc but no docs. I will take some time on Monday to go down there and tackle this.

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    Missed that second bit you had there!!

    Come on man I'm already having nightmares!! :P LOL

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    @Wayne Brooks Thanks Wayne!

    @Dustin DuFault Keep an open mind.  LOTS can happen.  I once bought a deal from the heirs, got it all the way through probate and then title found a Medicaid lien during my re-sale escrow. No other title report had revealed this lien and this was back when we didn't have notify the state during probate. It turns out the heirs had agreed to pay the debt and signed a voluntary lien in their names with the dept. of health care services several years prior.  I had my attorney make a demand for the balance to see how bad the interest and late fees were on top of the principal. The state sent back a letter stating there was a zero balance and a copy of the lien release they had sent in for recording.  Asking around, my estate attorney found out that many of those liens were not unenforceable as heirs don't owe for decedent's Medicaid debt.  But it's not like the state had any automatic release process for the thousands of liens they had improperly recorded.  It was only going to get released if we asked for the balance.

    So you just never know.....

    2Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    12y

    Boy, there's just nothing like getting all torn up about a problem before you are certain that it's a problem. 

    This is probably why Einstein said, 'You can't solve a problem from the level of the problem'.

    I've had a number of problems in the future that I was afraid of (very few of which were valid). 

    You are merely dealing with fear because you really and truly don't know the facts. What is unfortunate is that you are involving others in your reaction. 

    I suggest you call "time out" and get the LP foreclosure complaint, read it and also get the lender's demand. Closing your eyes to the details and facts will teach you nothing and probably not conclude in favorable results. I suggest staying ahead of the problem from this point forward.

    1Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    Well, the sting in any rebuke is the truth, Rick.

    I will say that I was missing the fact that I could uncover the loan detail in the complaint at the courthouse, not having reviewed those records before. 

    That clearly is my next step. Thanks everyone for their input.

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    @Account Closed 

    Thanks for the encouragement, it is much appreciated.

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by @Dustin DuFault:

    Well, the sting in any rebuke is the truth, Rick.

    I will say that I was missing the fact that I could uncover the loan detail in the complaint at the courthouse, not having reviewed those records before. 

    That clearly is my next step. Thanks everyone for their input.

    To clarify, the loan balance in the complaint that was dismissed isn't necessarily the balance.  You have no way of knowing what arrangements or payments the borrower made.  For example, what if they stupidly paid off the 2nd, thinking that would stop foreclosure on the first.  I've seen that more than once. Seriously, some borrowers actually think by sending payment with their monthly coupon that the foreclosure will go away.  

    Like I said, lots can happen.  Get escrow to make a demand for the balance and look at the court case.  You'll know more about what you are working with then.

    0Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    12y

    Dustin - I, like most everyone here on this thread, are in your side. 

    I look forward to reading your update after you've fully researched the facts and have regrouped. My vote is for you to make a big profit!

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    @Rick H. 

    Thanks, I appreciate it. 

    I will update on Monday with what I find!

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    Okay, updates as promised...

    The LOC at the time of the junior foreclosure complaint was close to maxed out. $69k before fees, expenses, etc. So no easy news there. I've also asked the title company to make a payoff demand to double check.

    More interesting and promising was that my, admittedly amateur, legal research over the weekend seems to indicate that in Florida the law provides a widespread use of a legal doctrine called 're-foreclosure'. Basically allowing subordinate liens to be added in after the fact on the original foreclosure case in order to close them out. This may be my saving grace in getting this resolved.

    As a point of interest - the senior foreclosure complaint referenced the junior lien in a way that makes it appear the intent was to close it out --- they just didn't serve themselves. So it's really seeming at this point that this was an oversight on their part. Not sure what the implications of this will be - but I'm hopeful that will mean they are easier to work with in resolving things. Maybe I can get an easy lien release.

    So my plan is...

    -Get the lien demand back, and confirm that their is still a balance.

    and then after advice from council...

    -Possibly contact the bank directly to seek lien release since the law appears to allow me to add their lien interest onto the original action anyway, thus saving time / money / etc.

    -Possibly file a re-foreclosure action as mentioned above.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    @Dustin DuFault 

    I've seen the "re-foreclosure" routine numerous times....but it was always when the first mtgee got it back at the sale, then when they went to sell it, a title search revealed a missed junior lien holder, similar to your situation.  They reopen, and amend the foreclosure.  I will be Very interested to see if a third party bidder would have "standing" in order to do this. PLEASE let us knows how this shakes out.

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by @Dustin DuFault:

    Okay, updates as promised...

    The LOC at the time of the junior foreclosure complaint was close to maxed out. $69k before fees, expenses, etc. So no easy news there. I've also asked the title company to make a payoff demand to double check.

    More interesting and promising was that my, admittedly amateur, legal research over the weekend seems to indicate that in Florida the law provides a widespread use of a legal doctrine called 're-foreclosure'. Basically allowing subordinate liens to be added in after the fact on the original foreclosure case in order to close them out. This may be my saving grace in getting this resolved.

    As a point of interest - the senior foreclosure complaint referenced the junior lien in a way that makes it appear the intent was to close it out --- they just didn't serve themselves. So it's really seeming at this point that this was an oversight on their part. Not sure what the implications of this will be - but I'm hopeful that will mean they are easier to work with in resolving things. Maybe I can get an easy lien release.

    So my plan is...

    -Get the lien demand back, and confirm that their is still a balance.

    and then after advice from council...

    -Possibly contact the bank directly to seek lien release since the law appears to allow me to add their lien interest onto the original action anyway, thus saving time / money / etc.

    -Possibly file a re-foreclosure action as mentioned above.

    Can you file a re-foreclosure as the property owner?  How could you be a plaintiff in a foreclosure when you are not the lender?

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    Agreed - this is confusing, which is why it's taken me a while to understand it myself!!

    Here is a quote from a paper on re-foreclosure that explains it...

    "The right to re-foreclose an omitted party passes with the title to the property. Therefore, the purchaser at the original foreclosure sale, as well as their successors, have the right to re-foreclose any omitted junior interest holders."

    Source

    I will believe it when I see it... but this does sound promising too me :)

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by @Dustin DuFault:

    Agreed - this is confusing, which is why it's taken me a while to understand it myself!!

    Here is a quote from a paper on re-foreclosure that explains it...

    "The right to re-foreclose an omitted party passes with the title to the property. Therefore, the purchaser at the original foreclosure sale, as well as their successors, have the right to re-foreclose any omitted junior interest holders."

    I will believe it when I see it... but this does sound promising too me :)

    I answered my own question by reading the same article.  But it also says that as a reforeclosing owner, you are foreclosing on yourself and that the resulting judgment means pay the lender or the property will be sold at sale.  Why would anyone do that? 

    The type of “right of redemption” being foreclosed in a re-foreclosure action determines the course of the litigation. If the right of redemption being foreclosed is that of an owner, then the re-foreclosure proceeds much the same as a traditional foreclosure action. The re-foreclosing plaintiff must prove its entitlement to a final judgment of re-foreclosure. The final judgment of re-foreclosure will require that the owner pay the entire indebtedness owed under the judgment within a time certain or otherwise, the property is sold at a judicial sale.

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    @Account Closed 

    Check the next paragraph after your Quote...

    "In comparison, if the “right of redemption” at issue is held by a junior mortgagee, then the property does not need to be resold at judicial sale. Once again, the re-foreclosing plaintiff must first prove its right to foreclose the junior interest. Then, the court can enter an order requiring the junior mortgagee to exercise its “right of redemption” within a time certain or otherwise have their right, title, interest, estate or claim eliminated from the property through entry of a final judgment. "

    I think I'd be foreclosing on their right of redemption (which in this case is to pay off lien holder 1, and take first position). Since that would require more than lien holder 2's balance I cannot see them doing this... but I'm just pretending to know what I'm doing though :D:D

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    That does dovetail with what I saw in court one day, but didn't follow up on.  A third party bidder was trying initiate a "re-foreclosure" because of a missed junior lien holder in the original foreclosure.  From some quick searching, attorney opinions only-not the actual statute-this seems to be a viable approach.  Learnin' something new every day!

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    @Wayne Brooks 
    I'll definitely keep you in the loop here. 

    I much prefer to 'learn lessons' on BP than in real life! :-/

    Hopefully I can get back to that soon.

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by @Dustin DuFault:

    @Account Closed 

    Check the next paragraph after your Quote...

    "In comparison, if the “right of redemption” at issue is held by a junior mortgagee, then the property does not need to be resold at judicial sale. Once again, the re-foreclosing plaintiff must first prove its right to foreclose the junior interest. Then, the court can enter an order requiring the junior mortgagee to exercise its “right of redemption” within a time certain or otherwise have their right, title, interest, estate or claim eliminated from the property through entry of a final judgment. "

    I think I'd be foreclosing on their right of redemption (which in this case is to pay off lien holder 1, and take first position). Since that would require more than lien holder 2's balance I cannot see them doing this... but I'm just pretending to know what I'm doing though :D:D

    Judicial foreclosure is confusing to me.  But I want it to be true for your sake that you can foreclose away a missed jr. lien on a property bought at trustee's sale.  That would definitely change the game in California.  Keep us posted.  

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    @Account Closed

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    @Dustin DuFault 

    I agree that I don't believe any action by the second, filing foreclosure, would affect your rights or procedures.  But, unless they'd be willing to settle for $5k or less, the reforeclosure shouldn't take that long.  While some of our courts are "backed up" the long foreclosure times are usually a result of inaction on the plaintiff's part.  Seems like it would be filing of the complaint, serving the second, waiting the 20 days, then set a hearing date.  Seems like it would be a one hearing deal, based on reforeclosing out their redemption rights, but maybe that's optimistic.  Please do send me his "opinion letter" for my own future reference.  My email is below.  Thanks.

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    @Wayne Brooks 

    Thanks for your input; I did send that over.

    I'm not popping any champagne bottles yet, but I am hopeful this will be resolved soon :D

    0Reply
  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    If it is a small second just pay it.

    Joe Gore

    0Reply
  • Dustin DuFault
    OP
    Investor · Fernandina Beach, FL · Member since 2012 · 95 posts · 14 votes
    12y

    Thanks Joe.... it's not, unfortunately. 

    I'm still hopeful about making an appeal to the bank and getting a lien release... seems like it would be in their best interest be done with it.

    0Reply
  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    If it is a large amount just offer them 40% on the dollar and be done with it and the way it stands now you want to be able to sell with a lien on it, and I don't think any court will force a lien holder to release their lien without being paid.


    Joe Gore

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free