Loan Acceleration via Transfer of Title due to FC of Jr Lien

10 Replies

Assuming the note of the senior lienholder is a typical institutional note with a due on sale clause:

Can the senior lienholder accelerate a loan when a 3rd party obtains title by means of a trustee sale of a junior lien?

I purchased a manufactured home on its own lot a couple of years ago at a trustee sale for an HOA lien. I reinstated a loan, which was in default and senior to the HOA lien, and contacted the bank to take the loan subject to. The bank refused to give me any information on the loan since I was not authorized by the original borrower. I had the loan number, found out what the payment was from a friendly branch banker, and made P&I plus impound account payments ever since.

I should have concerned myself about the lack of insurance coverage for myself earlier but didn't until recently. I know that the lender pays for the property taxes and I assume that it has forced place insurance that names itself and the original borrowers as beneficiaries. It bothered me that I was paying for insurance that wasn't covering me. I contacted the bank again, this time in an attempt to replace the insurance policy at a minimum or to assume the loan in a best case scenario.

They responded by sending a letter addressed to the original borrower stating that they may accelerate the loan unless the property changes title back to the original borrowers, they refinance, or a qualified person assumes the loan. After talking to the customer service rep, assuming the loan or getting a new one from them is not an option since we hold title in an LLC.

I looked up CA state law (Civil Code 2947-2955) but couldn't find anything that might help me. Maybe I missed something. I always thought that a junior lienholder was allowed to make payments on a senior lien to protect their interest. However, I am not a junior lienholder, I am the property owner by way of the junior lienholder's disposition of the property.

Any thoughts? I'd appreciate any insights.

You should discuss this with a knowledgable attorney who understands relevant law.  But, AFAIK, yes, senior lienholders can and do call a mortgage due in this situation.  They are not required to allow you to continue to make payments.  And there's little you can do to prevent this, or even get them to give you a payoff.  You'll end up going to the auction and "buying" your own property again.  At least they're talking to you.  That doesn't always happen.  Figure out a way to pay them off and make this lien go away.

You see this a lot with HOA mortgages. Someone wins an HOA sale only to discover there is a senior lienholder who's owed more than the property is worth. The money they paid for the property at the HOA auction ends up being lost.

@Jon Holdman We have plenty of equity in the property so we'll still come out ahead by selling it. I'm planning on getting an insurance policy to cover us and then keep doing business as usual. As long as we keep making payments, I'm hoping the bank won't be too motivated to pursue FC but it wouldn't surprise me if they did. I just wondered if there was a legal way to avoid this and we're definitely talking to our attorney about options.

@K. marie P. posted this on a different thread and it helps with this discussion:

"The lender does not have to "work" with you of you are not the borrower and do not have an authorization to release. However, CA Civil Code of Procedure 2943 does state that the lender must provide a successor in interest (you) with a beneficiary statement that gives all the relevant info such as balance/pay off, escrow amounts, insurance info, etc. and whether the loan can be assumed. The lender has 21 days to respond. Read the code and construct your demand letter from the info there.

That being said, I once made six separate demands to HSBC and got to no response. I went back to the borrower and paid them to sign an authorization to release that included the SS and account numbers. I would think Wells pays more attention to legal demands than HSBC so you might actually get somewhere with a demand letter to them.

I might be able to help with the last four digits on the SS#. Feel free to PM me."

I looked up 2943 and it allows me, as a "successor in interest," to demand a beneficiary statement, a copy of the note, and a payoff statement. I intend to demand the first two.

I'm running into a problem getting insurance, though. I assume that the lender has forced place insurance but I don't know for sure since they won't deal with me. My insurance broker is telling me that he can't provide insurance if there's already a policy on the property. It seems that I can't get another policy that just covers me. Anyone run into this problem and how did you overcome it?

Absolutely the lender has rights to call the loan due if you become the successor in interest via foreclosure. The due on sale clause in the note applies. Transfer via a trustee's sale is not one of the exemptions in Garn St. Germaine.  Now, how it plays out and when and if the note gets called is another matter.  I assumed anyone buying subject to senior liens was aware of this?

@Brian Burke  @Dion DePaoli

Originally posted by @Andreas Mirza:

@K. marie P. posted this on a different thread and it helps with this discussion:

"The lender does not have to "work" with you of you are not the borrower and do not have an authorization to release. However, CA Civil Code of Procedure 2943 does state that the lender must provide a successor in interest (you) with a beneficiary statement that gives all the relevant info such as balance/pay off, escrow amounts, insurance info, etc. and whether the loan can be assumed. The lender has 21 days to respond. Read the code and construct your demand letter from the info there.

That being said, I once made six separate demands to HSBC and got to no response. I went back to the borrower and paid them to sign an authorization to release that included the SS and account numbers. I would think Wells pays more attention to legal demands than HSBC so you might actually get somewhere with a demand letter to them.Yo

I might be able to help with the last four digits on the SS#. Feel free to PM me."

I looked up 2943 and it allows me, as a "successor in interest," to demand a beneficiary statement, a copy of the note, and a payoff statement. I intend to demand the first two.

I'm running into a problem getting insurance, though. I assume that the lender has forced place insurance but I don't know for sure since they won't deal with me. My insurance broker is telling me that he can't provide insurance if there's already a policy on the property. It seems that I can't get another policy that just covers me. Anyone run into this problem and how did you overcome it?

You need to insure what you own, if you can.  But what do you own?  I get confused when sub2 buyers worry about insurance, especially if there is little or no equity. Liability insurance issues aside, any claim payouts will go to the senior lender. Neither the lender's forced place policy nor the original borrower's policy will pay out to you, even you are named as additional insured. 

As stated the mortgagee has the DOS to rely on.

Getting a statement, there is no easy answer, you to do what you are trying to do.  Hound them and continue to stand on your right as a successor that you are entitled to 'some' information just not all the borrower's account information.  

With the insurance issue, your agent is correct you can not double insure.  That said, there is certainly a brief period of overlap with insurance when LPI is placed and a borrower finally obtains a policy.  I would suggest obtaining insurance and naming the Mortgagee as loss payee and sending that in to see if they will remove their insurance since your policy has them insured.  The Mortgagee has the ability to accept or reject insurance in most cases through the language in the security instrument.  

In both cases if they do not want to play nice with you I would suggest you place a call into the CFPB and see if they can help you.  

Originally posted by K.marie P.:

Absolutely the lender has rights to call the loan due if you become the successor in interest via foreclosure. The due on sale clause in the note applies. Transfer via a trustee's sale is not one of the exemptions in Garn St. Germaine.  Now, how it plays out and when and if the note gets called is another matter.  I assumed anyone buying subject to senior liens was aware of this?

@Brian Burke  @Dion DePaoli

I incorrectly believed that an involuntary transfer was different and would not trigger a DOS. Sorry to ruin your assumption! :) I humbly acknowledge that I should have figured that one out before I did what I did.

Originally posted by K. marie P.:
Originally posted by @Andreas Mirza:

You need to insure what you own, if you can.  But what do you own?  I get confused when sub2 buyers worry about insurance, especially if there is little or no equity. Liability insurance issues aside, any claim payouts will go to the senior lender. Neither the lender's forced place policy nor the original borrower's policy will pay out to you, even you are named as additional insured. 

At this point, there's some decent equity in the place. FMV: $215k, Outstanding Debt: $150k. I am concerned about liability, first and foremost. Although it's a remote possibility of being sued, we leave ourselves open if we don't have ANY coverage and I'm more fearful of losing what I've got now than any further price gains. Getting insurance has been problematic and, if we can't get it, the best option will probably be to sell it if we also can't refinance.

Originally posted by @Dion DePaoli :

As stated the mortgagee has the DOS to rely on.

Getting a statement, there is no easy answer, you to do what you are trying to do.  Hound them and continue to stand on your right as a successor that you are entitled to 'some' information just not all the borrower's account information.  

With the insurance issue, your agent is correct you can not double insure.  That said, there is certainly a brief period of overlap with insurance when LPI is placed and a borrower finally obtains a policy.  I would suggest obtaining insurance and naming the Mortgagee as loss payee and sending that in to see if they will remove their insurance since your policy has them insured.  The Mortgagee has the ability to accept or reject insurance in most cases through the language in the security instrument.  

In both cases if they do not want to play nice with you I would suggest you place a call into the CFPB and see if they can help you.  

 Thanks for the advice. I appreciate it.....