In a Foreclosure with 2 Mtg. Lenders, 2 LOC’s, and an HOA Lien, What is the Order of $ Distribution or Rights?

I fell behind on my Mtg. Pmts. and Wells Fargo put me into foreclosure with a scheduled auction date last month, but I was able to scrape up the downpayment on a 12-month ‘catch-up’ plan arranged through theirattorneys McCalla-Raymer (Atlanta). Wells Fargo put up 95% of the initial equity to buy the place and are now satisfied and happy that I’m back on board. My problem is that in the subsequent past month, both my HOA and Wachovia (HEL of $40K) have threatened foreclosure as well. Does this work without WF’s cooperation, and even if so, how does it make economic sense for either. The house will net under $210K, and WF is owed close to $270K (balances of 1st, 2nd & $40K HEL) themselves, next up would be Wachovia with their LOC of $40K and then the HOA who already has a default judgement lien on the place for unpaid HOA dues and an unpaid Assessment. The $$$ don’t seem to add up. Wouldn’t Wells Fargo get it all without paying the Legal Fees, and even then lose money?

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Tagged with Distribution, Foreclosure, Lenders, Lien, LOC's, Mtg., order, Rights.

3 comments

By wade – July 24, 2010

3 Responses

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kta kta says

1st mortgage will be paid first.. 2nd mortgage next.. after that would depend on the order that you opened the accounts and the contracts with the lenders.. usually the order you open them is a safe bet since you have to get letters signed from current mortgage companies if you want to be in a higher priority- which most lenders will not sign. If the profit from the sale is eaten up by the 1st mortgage, then no one else is paid.. Chances are, by the time you pay off the first or 2nd mortgage, there is no $ left over.

July 24, 2010, 5:57 am
Mike says

Often the holder of a second will foreclose even if the amount owed on the first is more than the fair market value.

The reason is that if the holder of the second can sell his interest at a trustee’s sale ahead of the holder of the first, sometimes the holder of the second will be able to sell their interest and get some money.

You might ask, how can this possibly happen. Is not that dishonest?

I will tell you how I have seen it happen at trustee sales.

There are many people who buy at trustee sales because they think that they are going to make a fortune buying foreclosures.

Many of these people do not understand how a trustee sale works. Often these are people who bought the books and tapes that are sold on the late night infomercials that promise that you can become a millionaire buying foreclosures.

The holder of the note that is foreclosed merely sells his interest for cash paid with cashier’s checks, with no guarantee of good title to the buyer.

If there are unsophisticated buyers at the trustee sale they often have not done their homework and searched the title at The County Recorder’s Office for all of the outstanding liens against the property and their position. In most cases they do not even know how to conduct that research.

I have seen unsophisticated buyers purchase a note in second position without realizing that they have to pay off the first.

Then the first forecloses and takes the property back. This extinguishes the interest of the holder of the note in second position. The purchaser of the second loses his interest and receives no compensation.

I will give you a real life example of how this happens that I witnessed on The Courthouse steps in San Jose.

A condominium with a fair market value of $350,000 had a loan in first position against it which with accrued interest, penalties and fees had an outstanding amount of approximately $345,000. There was also an outstanding loan in second position of approximately $80,000 including accured interest penalties and fees.

The holder of the loan in second position had filed his Notice of Default several weeks before the holder of the first had filed their Notice of Default.

Therefore the holder of the second was able to get the right to sell their interest at the trustee sale several weeks before the holder of the first was able to get the right to sell their interest at the trustee sale.

At the trustee sale of the loan in second position an unspohisticated person bid $20,000 for the interest of the holder of the second.

At a trustee sale all payments are made in the form of cashier’s checks and there are no refunds and no guarantees of good title.

Several weeks later the holder of the first acutioned their position at the trustee sale. There were no bidders willing to bid the $345,000 amount of the first. The holder of the first bid the amount owed, which was $345,000 and got the property back. This extinguished the position of the holder of the second, who was the unfortunate young man who had purchased it for $20,000 several weeks earlier.

Essentially the young unfortunate man paid $20,000 for a worthless piece of paper.

This was a very expensive lesson in the school of hard knocks.

This also demonstrates why the holder of the second is often in a hurry to file a notice of default and get to the trustee sale ahead of the holder of the first.

Occasionally an unspohisticated buyer will pay a substantial amount of money for a position that is essentially worthless.

That is the way trustee sales work, and that is why they are a high risk way to buy property.

July 24, 2010, 6:08 am
foreclosurefish_com says

If you’re in default of any of those, the lender can sue for a foreclosure.

The general order of how liens are paid off is…

First, property taxes.
Second, the first mortgage.
Third, the lien recorded soonest after the first mortgage.
Fourth, the lien recorded soonest after the previous one.
Fifth, the lien recorded soonest after the previous one.

And so on. If the first mortgage is paid off but there are no proceeds after that, then the other liens simply receive nothing from the sale.

Hope that helps.
ForeclosureFish

July 24, 2010, 7:02 am