Replies to This Discussion

Permalink Reply by joe beauchamp on July 26, 2013 at 6:23am

Nope, you're probably stuck. Some BK's strip the liens from the property, apparently, this one did not. They aren't going to do a release because you've lost that leverage with the BK - it would be a release to $0. If this is someone who bought the debt at 10%, they often can be bulldogs who are told that they make more by getting the occasional one to pay and lose everything on all the others than to accept what is given. This is generally not true, but they are managed that way.

Since you've done a couple of extensions, I'm guessing that you did push this hard with them and they aren't folding. The only other thing I can think of is too lengthy and may not apply - go the QWR route (where they don't have to respond for 60 days). You might find that they have securitized the loan and have no right to collect anything or violated significant laws.

You might try complaining to the CFPB, FTC or whoever oversees this company. You might try the big guns of a state senator?

I have not done any of these on a 2nd - consider it blue-sky thoughts?

Permalink Reply by Blair Stacks on July 26, 2013 at 9:58am

Is the second with the lender or with a collection agency?  The collection agencies are vultures.  If it hasn't been long since the loan was transferred to the CA, you MIGHT be able to get the original lien holder to pull it back.  Otherwise the lien is valid and they will likely not budge.  Another option is the contact the State AG's office.

Permalink Reply by Donna Clayton, Broker, MBA on July 27, 2013 at 9:32am

I recently encountered the same situation.  Even though the borrower was personally released of the obligation via the BK, the lien against the property survives the BK.  So the lien holder still has the right to pursue their interest in the property.  You will need to somehow reach a settlement with the 2nd.  I don't believe handling of the lien is within the Trustee's jurisdiction.  When I recently faced the same problem, we were forced to negotiate an acceptable settlement with the 2nd.  If it's a major lender you will have a better chance of succeeding.  Good Luck.

Permalink Reply by Donna Clayton, Broker, MBA on July 27, 2013 at 1:02pm

When a person borrows money in a mortgage arrangement, there are TWO parts to the legal agreement.  

The FIRST part of the agreement is the "Mortgage" which means that in exchange for the money the lender is paying, the lender receives a collateral interest in the property being financed. The collateral interest is otherwise known as a LIEN.  Whether 1st or 2nd in position, the LIEN still represents a collateral interest in the property.

The SECOND part of the agreement is the "Note".  The note confirms the borrower's personal PROMISE to repay the money.

In a bankruptcy proceeding, the NOTE may be dismissed, or "discharged".  In other words, the borrower may be legally relieved of their PROMISE to repay the money.

However, a bankruptcy does not automatically remove the LIEN.  Thus, even after the bankruptcy discharge, the bank may still have every legal right to pursue their rights under the original collateral agreement. In a short sale negotiation, the 2nd lien holder must be satisfied before they agree to release the LIEN.

In summary:

NOTE = PROMISE (Generally released in a BK)

MORTGAGE = LIEN (Not automatically released in a BK)

I hope this helps to clarify any confusion on the subject.  (I learned this lesson the hard way -- 3 days before closing.  Good news is... we still closed.)

Permalink Reply by joe beauchamp on July 27, 2013 at 5:52pm

Harry, it is not a given that the 2nd is still on the property. You really need to find out. Sometimes they are "crammed down" and other times, the 2nd does a release, I assume to write it off, which they cannot do while it is still on the property and it seems very unlikely that they will get anything in a foreclosure. I've dealt with it both ways. It is just something you have to find out to know for sure.

Permalink Reply by Richard Worcester on July 28, 2013 at 6:44am

Thank you to all of you for your wisdom and advice here. Though I have been doing this for years, sometimes we forget whom we are dealing with... This is a small lender 2nd lien. They are going to be difficult, I am now prepared for that. I will need to re-set the expectations of my clients with regards to 2nd lien settlement, and most importantly, I will not take any of this personally or get emotionally wrapped up in it. That is the hardest part of this whole business, isn't it!!!

Permalink Reply by Michael Hayley on July 28, 2013 at 11:07pm

 "I will not take any of this personally or get emotionally wrapped up in it". Boy, do I agree with this statement, Richard. I think that is the hardest skill in the business and it is critical for success ...and sanity. I make a daily affirmation similar to this.