2nd Mtg in Non Recourse WA State - Posted by Sam

Posted by John Merchant on July 20, 2010 at 16:38:07:

Rick is right on here.

Right now I’m having to sue on a 2d note (now unsecured because 1st is or will be foreclosing)and then chase the debtor when I have my judgment in hand.

If my debtor here was not USMC career non-com I probably would have advised creditor not to bother but I’m banking on USMC not liking his being sued “a’tall”!

It’s gonna cause him no small inconvenience as he’s in HI and my suit is “right cheer” in State of WA (because this is where he signed note and gave a DOT on WA dirt), so I’d bet we’re going to get his full attention.

By the way, a look at Service Members Civil Relief Act (the old Soldiers & Sailors, now updated and PC renamed)shows that it doesn’t give him much relief since he signed the note and DOT while he was on active duty, which he still is.

So if any of you CRE readers have action against US military, don’t quit until you or your lawyer fully dig into what actual delay or deferral that military status might give that GI.

2nd Mtg in Non Recourse WA State - Posted by Sam

Posted by Sam on July 11, 2010 at 04:22:16:

Hello,

I have a first mtg with BOA, and the 2nd mtg is with GMAC and it is a HELOC and not a purchase money mortgage. We got the HELOC several years afer purchasing the home to do some improvements.

It was always my understanding that the 2nd would have no recourse for deficiency judgment if the property goes to auction. Isn’t that the case? The information I have sought out from other borrowers show otherwise - 2nd lien holders turning it into unsecured debt and then coming after you after the sale.

Also, if we are lucky enough to negotiate a settlement from them, how do we protect ourselves from further reccourse/deficiency judgments?

We are current on our loans; however, we are going to stop paying this month (for both financial reasons and the fact that the proeprty is under water) and I am gathering all of the facts so we can make the best decisions possible - foreclosure, short sale, settlement of 2nd and loan mod for first mtg…etc.

I am going to pull all of my original loan documents to review them. Would the language for the 2nd include “recourse” or “non-recourse?” If so, doesn’t Washington State foreclosure law trump the provisions of the lender’s note?

Finally, how does the Federal Debt Relief Act factor in on my situation?

No 2d defic.J in res.mtg - Posted by John Merchant

Posted by John Merchant on July 11, 2010 at 23:49:19:

You may be confusing things here with a reference to a “deficiency judgment” action.

A DJ is one filed by a lender AFTER its DOT foreclosure, and cannot in WA be done except on a deficiency on a non-residential mtg…if BOA had and foreclosed on a DOT on your residence, then it cannot now sue you for DJ.

But what would then keep your other lenders
from suing you on their notes from you? NOTHING. NADA. ZILCH.

To make clear, 2d, 3d, etc. OTHER lenders on your home can absolutely sue you on the notes you signed to them.

BOA might take the house, but these other lenders can sue on whatever they have in secondary notes from you even thought their DOTs are now invalidated.

These suits on secondary financing are NOT called “Deficiency Judgment” suits, but would be just plain suits on defaulted notes.

A DJ suit is only filed by a foreclosing lender post-DOT foreclosure on its deficiency when the repo’d house isn’t worth the money they’ve lost.

Just to clarify… - Posted by Rick Harmon

Posted by Rick Harmon on July 13, 2010 at 22:28:16:

John is one of my favorite posters and I certain believe he knows more about WA foreclosure and collection law than about anyone I know.

I merely wish to clarify that, a foreclosed-out junior lender becomes an unsecured lender by fact that the security (the house) has been foreclosed upon by the senior (1st) mortgage lender. They would be free to sue on the debt and get a judgment that could attach to other assets and income streams

Or, the junior lender, believing they’ll have a better chance at liening other assets belonging to the borrower, may elect to surrender the security (i.e., abandon their deed of trust) and get a judgment and an AJ that would attach to other assets that the debtor owns. I believe that there was a bit of a rally for notebuyers a couple of years ago who wanted to buy this kind of paper for pennies on the dollar hoping to profit later when debtors dropped their guard and forgot about their old debt. Have no idea what came out of that flurry of activity, tho.