Posted by John Behle on December 03, 1999 at 22:39:54:
The lender is first in line for all that is due them. A junior lienholder (2nd) is behind that - in good or bad. Again, subject to the caveats above regarding modifying an existing first when there is a junior lienholder.
Question on First Note VS. 2nd note? - Posted by JohnBoy
Posted by JohnBoy on December 03, 1999 at 17:43:28:
Let’s say a person had originally taken out a first mortgage for $50k. The person has a problem with making payments and turns to HUD for help to lower the payments by half for a 3 year period. Meanwhile interest accrues on the payment amount that was reduced for 3 years bringing the pay off amount up to about $75k.
Does the bank need to record anything against the property to protect it’s interest in the amount that had accrued over the last 3 years?
What would happen if after checking title only showed the first recorded only showing the original $50k that was borrowed and then someone was to record a new second mortgage against the property for the $50k equity?
Would the first lose their interest in the amount that had accrued because of the 3 years they reduced payments or would the original first recorded showing only a $50k mortgage automatically protect their interest in the additional amounts that had accrued above the original $50k first even though they never recorded anything against the property to protect their additional interest?
What I’m asking is:
The property is worth $100k. Title only shows a first mortgage for $50k. Owner really owes $75k because of reduced payments for 3 years accruing on the principal.
If I was to create a new second mortgage for $50k and the first was to foreclose, would they still be entitled to collect the additional $25k that accrued in back payments without recording something or would the new second mortgage be entitled to anything above the original first only showing a first mortgage of $50k?
Thanks!
The first is 75k and fully secure - Posted by John Behle
Posted by John Behle on December 03, 1999 at 22:37:18:
The first is protected in the scenario you described. A second put on later would be at a higher LTV than appeared by the PR - but that is why we verify loans.
Now, the difference would be where there was already a second in place. The first “modifies” the terms in the way they did. The second could have a good case and the potential result could be that the first actually loses their position. Second becomes a first and the first becomes a second. It all depends on how and how much they modify the note.
We had a case with being in a 100k second position behind a 725k first. They were extending the loan, raising the rate and adjusting the terms. We held our breath - we could go to a 5% LTV! Somebody finally saw the light and sent us a subordination agreement as a part of the deal. Darn.
Re: Question on First Note VS. 2nd note? - Posted by JohnBoy
Posted by JohnBoy on December 03, 1999 at 17:50:49:
One more question.
If I was to record a new second for the $50k and the first was to start foreclosure on the property, would I as a second mortgage holder have the right to pay off the first for the $50k recorded against the property or would I have to pay off the extra amount that accrued against the first because of the payment reductions over the past 3 years if my second was recorded behind the original first that doesn’t reveal any principal or interest amounts that had accrued?