Legal Question in Real Estate Law in California
I hold a private 2nd note on a NOD filed property
I currently hold a recorded private 2nd TD on a property that I just noticed is on the Notice of Default list. What are my rights and what should I do to protect my interest in the property in case it goes to a foreclosure sale?
3 Answers from Attorneys
Re: I hold a private 2nd note on a NOD filed property
You can only protect your interest by foreclosing the second and bringing the first mortgage up to date. If you second is an out of pocket loan (not a purchase money loan) you can sue on the note and get a judgment even after your security interest in the real estate is wiped out by the foreclosure of the first mortgage.
Re: I hold a private 2nd note on a NOD filed property
You can: buy the 1st; or bid at the foreclosure auction (essentially the same thing). If the property sells at the trustee's sale for more than the balance owing on the 1st, plus costs of sale, attorney fees, etc., theoretically you have the right to the remainder and the trustee should pay it over to you. Otherwise, you may well be out of luck. Consult a local attorney in person.
Re: I hold a private 2nd note on a NOD filed property
First, I should point out that lenders on 2nd deeds of trust should prepare and record a request for notice of default along with or soon after recording their deeds of trust; that way, the holder of the 1st must send you a copy of the NOD and you don't have to depend on luck to find out.
I think the first thing I would do is a quick and rough economic analysis to see if there is going to be a deficiency if the property is foreclosed. That's the rule rather than the exception these days, but who knows? You probably made your 2nd loan believing there was sufficient collateral to protect you. Before doing the analysis, I'd go to the recorder's office and see who's ahead of you and who's behind; there may be tax liens, etc.
Then I'd check the property with a drive-by to see if the borrower is still in possession and whether the property is being cared for. I'd review the loan application for suspicious statements about income, net worth, anything suspicious, including what you were told about the borrower's first D/T.
With good information, you can make a better decision whether to negotiate with anyone (the borrower, the holder of the 1st), whether to bid at the trustee sale, whether you are likely to get any sale proceeds, and whether you have grounds to sue if and when you become an unsecured creditor due to foreclosure and insufficient proceeds to pay you off.