I gave a friend a loan of $100,000.00 in return he and his wife signed their house over in the form of a 2nd mortgage.
Is there any way out of them not paying it? The house is worth more than the orginal loan plus mine by 75,000.00
And if payments are not made...how hard is it to foreclose on house?
2 Answers from Attorneys
If the loan is evidenced by a note and is secured by a second mortgage on the house which the borrowers own, then you can institute foreclosure proceedings. What is the value of the home? Keep in mind that fair market value is higher than liquidation value (i.e., where the home is sold at a public foreclosure sale). You may want to do a lien search to determine whether there are any liens on the property that may prime your mortgage other than the first purchase money mortgage, i.e., real estate taxes, IRS or State tax liens, etc. This is how you can estimate what your prospects may be if you foreclose. If you don't have a note, but only a properly recorded mortgage, you may have a problem in foreclosing because there is no writing which evidences the underlying debt -- only a recorded mortgage which serves merely to secure the debt. If they don't pay per the terms and conditions of the underlying debt instrument, foreclosure would be a remedy and also perhaps suing them personally on the debt. Good luck.
There are 2 ways to proceed. First, if you had your debtors sign a promissory note you could sue to enforce collection of the note and obtain a judgment on the note. The judgment, upon recording with the Clerk of the Superior Court, would become a lien against the property. As a judgment creditor, you have certain rights to obtain discovery of financial information from the debtors, i.e., bank accounts, so that you can attempt collection of the amount due and owing.
You could also pursue a foreclosure action either independently or concurrently with the action on the note. As a 2nd mortgagee you can only foreclose on any liens that appear after your mortgage. In other words, you could not foreclose upon the first mortgage. If the house has sufficient equity, then foreclosing as the 2nd mortgagee would make sense. If you obtain a judgment of foreclosure, you could have the property scheduled for a sheriff's sale and hopefully someone will bid the amount due on your mortgage. If no one bids, you can credit bid your mortgage and obtain title to the property subject to the lien of the first mortgage. Before filing a complaint you will need to hire a search company to perform a judgment search and a tax search to determine whether any liens come after your 2nd mortgage, as well as to confirm that your 2nd mortgage has been recorded with the County Clerk's office. In New Jersey, there is a statute known as the Fair Foreclosure Act, which for residential mortgages must be adhered to strictly.
If I can be of any assistance to you, please let me know. Otherwise, good luck. Glenn R. Reiser, Esq. (201) 498-0400.
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