California | Real Estate Law
Legal Question
We have a are carrying a second mortgage on a house that is in a trust, the person is vey slow about paying, right now he is 3 months behind. Not sure what would be the next action on our part. He is usually two months behind..
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Legal Answer
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Read More Answered By: Bryan Whipple |
Several courses of action are possible. These include living with it, foreclosure, and various intermediate steps involving either putting pressure on the borrower or determining more facts about the borrower's financial position.
Developing a plan for dealing with a perpetually tardy second requires knowing as much as possible about the collateral (house in trust), the market, and the borrower. Basic questions are what is the house worth? How much is owed on the first? Is the first current, in arrears, or in default? How deep are the borrower's pockets?
If the borrower is not wealthy and your loan is under water, you may be better off living with the late payments and hope the market value improves in the next year or three so you have some equity and/or you'll be paid off when the borrower sells or the note matures.
If, on the other hand, there is some equity in the property, you might want to consider foreclosure. Likely you'd get the property back, still subject, of course, to the first mortgage, which would become your responsibility. First mortgages are always an issue for holders of seconds that are considering foreclosure.
If the first is delinquent as well and the lender forecloses, you'd lose your collateral (unless, of course, the sale price is sufficient to pay off your loan too) and would become an unsecured creditor of the borrower. This is usually not good, but occasionally, if the borrower is well-heeled, a suit or threat of suit will bring about payment. |
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