MMGM wants to always be at the forefront of monitoring changes in matters affecting real estate. A new trend appears to be emerging concerning the attitude of the major lenders on pursuing second liens where the anti-deficiency laws do not apply.
Let’s look at an example;
A homeowner has two loans with a major lender. The first was a refinance of the original purchase money “mortgage” and the second was a home equity loan to put in a swimming pool, purchase a car and to take some cash to pay up credit cards.
The Norm Six Months Ago
Six months ago the major lender probably would have “foreclosed” on the first lien, thus wiping out the security of the second lien. That would have been the end of the story. The homeowner would move on and not have any liability to the lender.
Now The Winds Have Changed
But the wind is changing direction. Some instances have been observed where the major lenders are taking a second look at those second liens. If the second lien is not a purchase money mortgage (i.e. a lien on two and a half acres or less, on a single family or duplex residence and the funds were borrowed to either purchase the single family residence or duplex or refinance the original purchase loan) the lenders are electing to sue the homeowner for the amount due on the second since it does not qualify for anti-deficiency protection. [The lender can’t foreclose on the second since the deed of trust was wiped out by the foreclosure of the first but the promissory note is still in tact and can be sued on.]
Why is this?
Right now the explanation appears to be a practical one. From the time the foreclosure debacle started in 2006 until recently the lender did not bother to pursue such second lien obligations because the homeowner in most instances immediately went into bankruptcy. All the money expended attempting to sue the homeowner turned out to be more money lost by the lenders. But now, with some improvement in the economy more people are reluctant to declare bankruptcy. The lenders have noticed this and are taking advantage of the situation and suing on the seconds that are not entitled to anti-deficiency protection.
The Advise to Homeowners About Their Rights
Thus in advising a homeowner about their rights in the event of a foreclosure it is important to advise that if their second lien is not entitled to anti-deficiency protection they should be aware the process server may be paying them a visit. The bright side of this is the lenders don’t want to spook the homeowners so they are often making offers to settle right up front for say, twenty five percent (25%) of the amount of the second lien. In some situation they will accept such payouts over time (years) with no interest accruing on the unpaid balance. This is on the theory that some amount being collected is better than none.
The morale of this is to BEWARE! The wind is changing direction. You need to keep up on such trends.