Legal Question in Real Estate Law in California

Re: 3rd Trust Deed

If one of the senior lenders forecloses and wipes out your deed of trust, you will become an unsecured creditor to the extent that the auction proceeds are not sufficient to pay off your loan. Under those circumstances, you can file a lawsuit to collect on the note to after the foreclosure sale occurs.

If you want to take the property back, you might consider your own foreclosure. In a judicial foreclosure, you might be eligible for a deficiency judgment or you could waive the security interest and proceed to a money judgment if the senior lender(s) wouldn't work with you to hold their foreclosures in abeyance while you work to retake the property. You might be in a better position to know the fair market and the viability of reselling to another buyer.

The advantage of a money judgment is that you could go after these other properties that the debtor owns.

Re: 3rd Trust Deed

You cannot get a deficiency judgment if you were also the seller of the property. Call me directly at 1.619.846.8947.

Re: 3rd Trust Deed

In response to your question I am assuming the property is CALIFORNIA property and that you made the loan to the owner after he already owned the property (and thus it is not a "purchase money" deed of trust). You have the option to step in and "cure" any default on the loans secured by the first and second deeds of trust by bringing them current and making the regular monthly payments on them while you commence and consummate your own foreclosure; or, you can wait until either the first or second forecloses and thus extinguishes your lien, and then sue the borrower as a "sold out junior lienholder". Your choice depends a great deal upon whether the value is in the property--I hope you did not take a third deed of trust without insuring there was an adequate equity cushion. You cannot go after his other properties unless you have a judgment against him in court. As regards the owner's demand to do an AITD, tell him to take a hike.

Re: 3rd Trust Deed

If the 3rd was obtained after the purchase, it may be possible to file a lawsuit against the debtor if your security is lost by a foreclosure.

Re: 3rd Trust Deed

I have no idea what Mr. Bravos is talking about. Mr. Starrett and Ms. Deming are correct, in that foreclosure by the 1st or 2nd will wipe out your security interest, but will then allow you to sue the borrower directly, since the security has been extinguished. Subject to several exceptions, a sold out junior lienholder is free to sue the obligor directly after foreclosure without regard to the "one action rule" of CCP 726, the prohibition against defeciency judgments in non-judicial foreclosure sales (CCP 580d) or the "fair" value deficiency limitation (CCP 580 and 726). (Bank of America v. Graves (1996) 51 Cal.App.4th 607, 613.)

Ms. Deming is correct in that the decision to either foreclose and see that the first two get paid, or to wait until the seniors foreclose depends on the market value of the property.

Very truly yours,