who qualifies to pay off 1st note in the foreclosure

Question

I am a first lien holder on the property and I am about to foreclose . I have an interested party who is claiming to be the 2nd lien holder and they have lis pendens , open lawsuit without a judgement and unrecorded deed of trust to the property as of now. Since the lawsuit is not completed and the deed of trust they are sending me is not recorded I suspect that this is just a ploy to postpone my sale.  Do they have any rights to request pay off amount and pay off my loan? My foreclosure company is pushing me to give them the numbers but I don't know enough about it to move forward. Please advice

Mike Hartzog · Answer

An unrecorded DOT is valid in most states.  I would check to ensure it is properly notarized, references the correct legal description, etc.  They should really get it recorded as it may be difficult for them to recover any overage if someone bids more than your payoff amount at the sale.  That said, I would not let it hold up your foreclosure process.   If they provide a payoff, you can always stop the process anytime prior to the foreclosure sale.

Brent Shields · Answer

I don't know of any case where someone holding a 2nd deed of trust in the state of California can order the 1st to postpone a sale without a ruling from a judge.

anyone can ask for a postponement, but it's up to the 1st if they want to do it or not.

Mike Hartzog · Answer

Keep in mind the a 2nd position lienholder would not “pay off” the 1st position lien, they would buy the loan.  Precisely for the reason that they do not own the property.

Chris Seveney · Answer

@Yana Sha

Why do you care who pays off the mortgage ?

They would be stupid to pay it off prior to foreclosure if they don’t own the property as the deed is still in someone else’s name

They may have a deed in lieu from the borrower and they hold the second and want to negotiate / pay you off so they don’t get wiped out

If it forecloses and there is little to no equity they could get wiped out

Speak to a lawyer but also need more info etc.

Tom Gimer · Answer

@Yana Sha You aren't going to get anything of value out of this exercise without posting the property location. Now that you are aware of this issue, among other things depending on the location, you may be required to give appropriate notice or the "lien" may survive your foreclosure.

Edward B. · Answer

This is an ideal situation. If they are willing to pay full price that is WAY better than foreclosing. I would even consider a discounted payoff to avoid going all the way through foreclosure and risk getting the property back and having to deal with that.

Yana Sha · Answer

Thank you so much for your advice!

Mike Hartzog · Answer

I would consult an attorney about whether or not you are obligated to work with the junior lien holder when the DOT is not recorded.  I think your concern is unfounded though.  We buy and sell loans all the time.  You could sell the loan to anyone without issue.  So if they want to give you a full payoff (remaining balance + accrued interest + legal fees to date), you assign the DOT to them, they become the new 1st lien holder, and you walk away.  Simple as that.  In addition, this it the way that junior positions protect their position.  IMO working with them is the right thing to do.  That said, you don't need to delay your foreclosure.  It's good to have a time limit in which they need to act.

Yana Sha · Answer

Thank you for your reply. I am concerned that if they end up paying it off before the foreclosure and it will be determined later on that their paperwork is not valid for some reason I will have to deal with this again rather than just going through the auction with the trustee.

Also, do I have to deal with the 2nd lien holder if they want to pay off the loan or can I just choose to foreclose? I am in California if it makes a difference

thanks again

Mike Hartzog · Answer

I should have suggested that you check with a local RE attorney.  The above is simply my perspective on it.

who qualifies to pay off 1st note in the foreclosure

Most Popular Reply