You asked: Wouldn’t the 2nd have to pay off the first if he/she forecloses? The answer is yes, if the first forces the deal after the 2nd forecloses then the new owner (whomever bought the second at the sale) has the responsibility of correcting, to the satisfaction of the first lienholder, the first.
In other words if the first wants to be paid off, the new owner has to arrange financing to do so. If the first is happy just getting payments on time…all well and good. That still happens even with the due on sale clause…remember…lenders are in the $$$$ business…NOT…the real estate business.
Can the 2nd afford to pay off the first? That is a question only the new owner can answer…however read the above and note that the new owner must be able to do something…and sometimes very fast.
I bought a house sub-2 where the 2nd is in default. The 2nd is only 7k and the default amount is like $650.00. The owner of this note is extremely unreasonable and does not want to negotiate since she knows the house has good equity in it. She wants a full pay-off and threatens to file a Notice of Default if I don’t pay her off by the 6th of June.
I have found a buyer for this house and we’re scheduled to close on the 18th of June. I don’t want her to file a notice of default and start racking up charges such as attorney fees and others since I’ll be paying for it.
She doesn’t want to allow me a chance to make up for the back payments as well. I wanted to also buy this note from her at full face value but she is not interested in selling it. The only option she is giving me is to pay it off in full by the 6th of June or else. End of Conversation!
Any idea what I should do? Should I wait until the 18th and pay it off at closing and risk having to pay more due to the added fees? Any idea how much these fees would be? I don’t want to pay this 7k now and risk losing it should something goes wrong before my closing date. Am I just being paranoid here? Should I just simply pay this lady off?
Here is another side question. If a property is take sub-2 and got put into a trust, how does one go about creating a Deed of Trust against this property to protect one’s position? Since the original owner is no longer the owner, who would be the “borrower” on this Deed of Trust? Can someone shed some light into this?
You have run into one of the cases which seldom, but can, happens. The holder of the 2nd has every right to exercise their due on sale and force the foreclosure or immediate pay off…you bought it per your post Sub-2.
That means you took title subject to the existing liens and due on sale clauses…this does not happen often in today’s market but is a liabilty that you must face.
You say you do not wish to pay the 7K now and risk losing it. If the deal is good enough I do not understand your risk. You should be reimbursed when you close. If it is a skinny deal…then you should have looked at it a bit closer.
I do not know how the 2nd lienholder can refuse to accept pay off if you hire and escrow company to request a payoff from them.
Then again we do not know how “P’od” you may have made the 2nd lienholder in your conversations…and…the 2nd leinholder may just be a hardball player from the gitgo.
I was a second lien holder on a note at a bank. The people who bought our land/trailer didn’t have good credit, so we did a second lien holder. They divorced and without telling us the bank foreclosed on the note; with the people oweing us money; and now the bank, lawyers and everyone tells me that the bank didn’t have to notify me or anything else. I just lost my money and the ability to own the land/trailer again. Is this correct; or what do I need to do? The bank refuses to sell, the land/trailer is just sitting.