The knee jerk reaction by many is to refuse to sign a note upon a junior lien holder’s demand. One may successfully argue that position. However, in the end if the junior lien holder will not let up the Borrower is not in any worse position if they sign the note.

First, they already have a note with that lender on which the lender will sue. This new unsecured note replaces the original note that is secured by a mortgage. The Borrower can always attempt to settle that new note at some point in the future.

The main advantage in signing the note is that the Borrower will have avoided the foreclosure and any possible deficiency judgment that may occur on liability to the first lender. Furthermore, in avoiding the foreclosure they may be eligible for a conventional mortgage once the Borrower does not have any mortgage late payments in the past 12 month cycle.

Basically, we recommend all attempts be employed to avoid the proposed note and to seek a full release of liability. Typically, as a last resort the Seller may be able to offer some additional money at closing in lieu of the note. However, in the end there is virtually no reason not to sign the proposed note if that is the only way to avoid the foreclosure.