Legal Question in Real Estate Law in California

Foreclosure with 2 Loans

I have a first mortgage on a home and a refinance loan where I took cash out to purchase another home. Now, the balance that I owe on the first mortgage is more than what the home is worth. I was renting the first home out for about a year but when the adjustable rate loan adjusts in a few months I will no longer be able to afford to make the first mortgage payment. What will happen if I let the bank foreclose on the first loan? Will I be given a 1099 on my second loan? Can they take my second home? Will filing for bankruptcy help?


Asked on 5/21/08, 2:24 pm

1 Answer from Attorneys
Scott Schomer Schomer Law Group

Re: Foreclosure with 2 Loans

Foreclosure of the first loan wipes out the lien of the second loan but does not extinguish the debt of the second loan. If the first lender conducts a foreclosure sale, the most likely result is that the second lender will sue you for the amounts due and owing under the second loan. As for the second lender 'taking' your second home, the second lender has standard enforcement rights which will probably include recording the judgment as a lien against the second home (after suing you and obtaining a judgment) and may include conducting a judicial execution sale of the second home. You have some defenses to these proceedings including homestead rights if the second property is your primary residence.

You should definitely consider speaking to bankruptcy counsel as bankruptcy may be your best option. You may also want to speak with both lenders to see if you can conduct a short sale.

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Answered on 5/21/08, 2:51 pm


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