Legal Question in Real Estate Law in California

Re: Foreclosure Law

After the 2nd's foreclosure, the holder of the third trust deed becomes what is known as a "sold out junior lien holder." A sold out junior lien holder can institute a lawsuit against the borrower to obtain a money judgment. The third will not "convert" to anything - you signed a promissory note when you obtained that loan, so the lender is still entitled to repayment of the loan.

Re: Foreclosure Law

Mr. Hoffman's answer is correct, but requires a little explanation, I think.

The foreclosure by the holder of the 2nd will leave the holder of the 3rd unsecured. Therefore, in one sense, the 3rd loan is "converted" into an unsecured loan. This is automatic, just like pulling out the 2nd story of a three-story house would leave the third story "unsupported."

The buyer at the foreclosure sale will take the property subject to the lien of the first deed of trust and free of the third.

You can be and probably will be sued by the holder of the 3rd if you don't pay it off.

Re: Foreclosure Law

Was the Deed of Trust collaterial for a promissory note? If so the obligation on the promissory note stands. Contact me directly.

Re: Foreclosure Law

I have information about this on my web page in a section about frequently asked questions about foreclosure. Before you read on, keep in mind that this is general information and may not apply to your particular situation. You should definitely have a consultation with an experienced lawyer and have him thoroughly review all your loan documents as they pertain to your particular situation. This is a brief explanation. The company foreclosing cannot seek a deficiency. The third can sue you for a deficiency only if you procured the third at a time after the purchase of your house. If this is not your house (i.e. investment property) or you did not procure the third loan at the time you purchased your house, then the third can theoretically go after you. However, be advised that the case law has carved out several exceptions to a subordinate lienholder's ability to collect a deficiency. It is unlikely the first will seek a deficiency, but there are exceptions to this generalization.