Page 2 of 2 FirstFirst 1 2
Results 11 to 18 of 18
  1. #11
    Join Date
    Oct 2006
    Posts
    15,624

    Default Re: Bidding on a Second Deed of Trust

    Quote Quoting B.Frank
    View Post
    Excellent! Thanks. This addresses the question clearly.



    Got it.



    Yes usually but I believe that it does happen. Every so often you get someone who simply does not care about their equity in that particular piece and the stress of a foreclosure and would rather do yoga in Belize or drugs in the tenderloin.



    I feel like this in in contradiction with some of the other replies. What you're saying is that in-essence, it's exactly the same no matter which lien-holder initiates the sale? Then why do people advise to be careful when bidding on a junior DOT?

    I don't know if there is a difference so just to be clear; I am referring to a trustee's sale (in California) where a junior lien holder in the second position has initiated a public sale for default of the second DOT.

    Putting this into a real-life example:

    There's a property with a house in California. There are no tax liens on the property or other liens that have ultimate priority. The senior DOT has a balance of $150,000. The second DOT has a balance of $50,000. There are no other liens recorded. The property has an estimated value on the traditional real estate market of $300,000. The owner, and borrower on both liens, no longer cares about the property, has let it deteriorate and has quit making payments on the second. The lien holder of the second initiates a trustees sale.

    I am the highest bidder at the trustee's sale. What do I need to do to have clear title, free of lien encumbrances?

    My understanding is that I need to pay off the balance of the first and have the lien holder release the lien. This response, however, implies that the sale will include payment to the senior lien holder too. Am I missing something?
    The senior lien holder should have bid on the property themselves (and been the highest bidder) in order to ensure that their loan was covered. However, the senior lien remains. They can still foreclose to get their money. You did not just buy a house for 50k (or whatever your bid was) the senior lienholders still have to get paid.

  2. #12
    Join Date
    Nov 2013
    Posts
    6,431

    Default Re: Bidding on a Second Deed of Trust

    I'm no expert on foreclosure sales but some research indicates that if a junior lienholder initiates foreclosure, the proceeds of that sale goes to the senior lien holder first and the property goes to whomever was the highest bidder on the sale. And if the bid was not high enough to satisfied both liens and it was a non judicial foreclosure (as most are in CA) there can be no deficiency judgment attached to the foreclosure. The high bidder on the second DOT gets the property for what was bid and the senior lienholder is SOL.

    So while llworking is correct that the senior lienholder should have been the high bidder to protect their interest, the first DOT does not survive.

    There are plenty of articles on the internet about a second lienholder foreclosing. I won't link to them because they are mostly lawyers and pay for service sites. But for it to make financial sense for a junior lienholder to foreclose there has to be enough equity in the property to satisfy both liens or to pay off the senior lienholder and money left over for the junior lienholder to recover all or part of there money.

    From what I read, I say that OP gets the property for what he bid and the first DOT is gone.

  3. #13
    Join Date
    Oct 2006
    Posts
    15,624

    Default Re: Bidding on a Second Deed of Trust

    Quote Quoting budwad
    View Post
    I'm no expert on foreclosure sales but some research indicates that if a junior lienholder initiates foreclosure, the proceeds of that sale goes to the senior lien holder first and the property goes to whomever was the highest bidder on the sale. And if the bid was not high enough to satisfied both liens and it was a non judicial foreclosure (as most are in CA) there can be no deficiency judgment attached to the foreclosure. The high bidder on the second DOT gets the property for what was bid and the senior lienholder is SOL.

    So while llworking is correct that the senior lienholder should have been the high bidder to protect their interest, the first DOT does not survive.

    There are plenty of articles on the internet about a second lienholder foreclosing, I won't link to them because they are mostly lawyers and pay for service sites. But for it to make financial sense for a junior lienholder to foreclose there has to be enough equity in the property to satisfy both liens.

    From what I read, I say that OP gets the property for what he bid and the first DOT is gone.
    I think that you meant junior lienholder where I bolded.

  4. #14
    Join Date
    Nov 2013
    Posts
    6,431

    Default Re: Bidding on a Second Deed of Trust

    Quote Quoting B.Frank
    View Post
    I am the highest bidder at the trustee's sale. What do I need to do to have clear title, free of lien encumbrances?

    My understanding is that I need to pay off the balance of the first and have the lien holder release the lien. This response, however, implies that the sale will include payment to the senior lien holder too. Am I missing something?
    I think you got the property for what you bid on the sale. Consult a local foreclosure attorney on how this will be recorded and what if anything you need to pay.

    Quote Quoting llworking
    View Post
    I think that you meant junior lienholder where I bolded.
    No. the first lien holder has no longer a claim to the property. The lien is wiped out. They get what the proceeds of the sale were and if not sufficient to satisfy their lien, they have no further lien. The junior lienholder would get nothing.

    In this case if there were a balance of $150,000 on senior and 50,000 on junior the bid was for $100,000, then senior gets the $100,000 and is out $50,000 and junior gets zero.

  5. #15
    Join Date
    Oct 2006
    Posts
    15,624

    Default Re: Bidding on a Second Deed of Trust

    Quote Quoting budwad
    View Post
    I think you got the property for what you bid on the sale. Consult a local foreclosure attorney on how this will be recorded and what if anything you need to pay.



    No. the first lien holder has no longer a claim to the property. The lien is wiped out. They get what the proceeds of the sale were and if not sufficient to satisfy their lien, they have no further lien. The junior lienholder would get nothing.

    In this case if there were a balance of $150,000 on senior and 50,000 on junior the bid was for $100,000, then senior gets the $100,000 and is out $50,000 and junior gets zero.
    So, wouldn't the junior be the one that is SOL, rather than the senior in that case? The way the sentence I bolded reads its the Junior that gets whatever money there is and the senior is SOL.

  6. #16
    Join Date
    Nov 2013
    Posts
    6,431

    Default Re: Bidding on a Second Deed of Trust

    Simply put, if the sale price is not enough to cover the senior lien then the senior lienholder gets only a portion of what is owed and the junior gets nothing. The senior lien is paid off first even though it was the junior that foreclosed.

  7. #17
    Join Date
    Jan 2006
    Posts
    38,728

    Default Re: Bidding on a Second Deed of Trust

    From the website of a California attorney’s speaking of California law
    the buyer at the foreclosure sale buys “subject to” senior deeds of trust. For that reason, junior lien holders seldom foreclose.



    per California law, (cal civil code 2924k) payment received from a sale is paid in order to:

    costs and government liens
    creditor that filed suit
    junior lien holders in order of their priority
    and finally if there is any excess: the borrower.

    the law does not address senior liens because they are not affected. They simply remain in place.
    2924k.

    (a) The trustee, or the clerk of the court upon order to the clerk pursuant to subdivision (d) of Section 2924j, shall distribute the proceeds, or a portion of the proceeds, as the case may be, of the trustee’s sale conducted pursuant to Section 2924h in the following order of priority:
    (1) To the costs and expenses of exercising the power of sale and of sale, including the payment of the trustee’s fees and attorney’s fees permitted pursuant to subdivision (b) of Section 2924d and subdivision (b) of this section.
    (2) To the payment of the obligations secured by the deed of trust or mortgage which is the subject of the trustee’s sale.
    (3) To satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority.
    (4) To the trustor or the trustor’s successor in interest. In the event the property is sold or transferred to another, to the vested owner of record at the time of the trustee’s sale.
    (b) A trustee may charge costs and expenses incurred for such items as mailing and a reasonable fee for services rendered in connection with the distribution of the proceeds from a trustee’s sale, including, but not limited to, the investigation of priority and validity of claims and the disbursement of funds. If the fee charged for services rendered pursuant to this subdivision does not exceed one hundred dollars ($100), or one hundred twenty-five dollars ($125) where there are obligations specified in paragraph (3) of subdivision (a), the fee is conclusively presumed to be reasonable.






    Here is a little story that that touches on your situation

    https://www.sfgate.com/realestate/ar...he-3257031.php


    a first lien holder cannot foreclose until there is a legal basis to do so. If the first mortgage is current, until the seconds foreclose and there is a transfer of ownership, unless there is a specific clause in the first lien holders contract the mere delinquency of a junior lien holder triggers a due on call clause, the first simply cannot act until the foreclosure of the junior lien holder. Then due to California law requiring a first lien holder to provide a longer notice than than a junior lien holder, it is quite possible a junior lien holder can sell their paper before a first lien holder can legally do anything. The story linked touches on that point as well.

    As stated in that story, the first lien simply remains in place. It does not receive funds from the foreclosure by a junior lien holder nor is the lien stripped from the property. When you purchase property through a junior lien, you buy it subject to the senior liens.

  8. #18

    Default Re: Bidding on a Second Deed of Trust

    Excellent info llworking, jk and budwad.

    Budwad,

    I came across similar info myself. The info was mostly on non-reputable/non-technical sites though and it was contrary to my understanding of how trustee's sales functioned in California. This is one of the reasons I started this thread.

    llworking,

    The senior lien holder should have bid on the property themselves (and been the highest bidder) in order to ensure that their loan was covered
    After reading what everyone wrote, especially jk and pg, I don't think this is the way it works. In most situations a senior lien holder would be ludicrous to bid on a junior lien foreclosure because if they won they would literally be tossing that money over to the other lien holder for no reason.

    Jk,

    This is essentially what I was told by a friend and retired real estate attorney as well. Thanks for the article. It sounds like the bank ended up working out a deal with them probably selling it for close to market value.

    A few people have said you aren't "bidding on the second DOT" at a trustee's sale of a junior lien. What is it you are bidding on then?

    Here's a quote from the notice:
    Quote Quoting Notice of Trustee's Sale
    NOTICE TO POTENTIAL BIDDERS: If you are considering bidding on this property lien, you should understand that there are risks involved in bidding at a trustee auction. You will be bidding on a lien, not on the property itself. Placing the highest bid at a trustee auction does not automatically entitle you to free and clear ownership of the property. You should also be aware that the lien being auctioned off may be a junior lien. If you are the highest bidder at the auction, you are or may be responsible for paying off all liens senior to the lien being auctioned off, before you can receive clear title to the property. You are encouraged to investigate the existence, priority, and size of outstanding liens that may exist on this property by contacting the county recorder's office or a title insurance company, either of which may charge you a fee for this information. If you consult either of these resources, you should be aware that the same lender may hold more than one mortgage or deed of trust on the property.

    1. Sponsored Links
       

Page 2 of 2 FirstFirst 1 2

Similar Threads

  1. Title History: What is a Deed vs. a Trust Deed
    By jyeh74 in forum Real Estate Ownership and Title
    Replies: 5
    Last Post: 03-26-2018, 05:04 PM
  2. Mortgages: How to Pay Off a First Deed of Trust
    By sicka-it in forum Buying, Selling and Conveying Real Estate
    Replies: 1
    Last Post: 03-01-2012, 02:35 PM
  3. Foreclosure: Sun Trust Second Trust Deed
    By RJH in forum Buying, Selling and Conveying Real Estate
    Replies: 1
    Last Post: 07-07-2009, 08:22 AM
  4. Deeds - Quitclaim: Can A Quit Claim Deed Be Used To Release A Deed Of Trust in California
    By titanrocket in forum Real Estate Ownership and Title
    Replies: 1
    Last Post: 01-03-2008, 03:00 PM
  5. Trusts: What is a Deed of Trust
    By ocnprknatv in forum Estate Planning, Administration and Probate
    Replies: 7
    Last Post: 04-01-2006, 05:44 AM
 
 
Sponsored Links

Legal Help, Information and Resources