Legal Question in Real Estate Law in California

Re: Pay for second mortgage after foreclosure

Once the first forecloses, the second becomes a "sold-out junior lien holder." You still owe the lender the money you borrowed, the debt just is not secured by a second deed of trust because that lien is "wiped out" by the foreclosure. You are likely to be sued by the holder of the second at some point after the foreclosure.

Re: Pay for second mortgage after foreclosure

You can be sued for any unpaid balance on the loan.

Re: Pay for second mortgage after foreclosure

You can be sued for any unpaid balance of any loan other than a 'purchase money' 1st TD loan.

Re: Pay for second mortgage after foreclosure

The funds from the foreclosure sale will be applied to liens against the property in priority order. Available funds will be used to pay the costs of foreclosure, then to payment of the first mortgage, various taxes, etc. and on down to and including the second and any junior mortgages. The higher-priority liens get paid 100 cents on the dollar before any junior item gets the first penny. In the past, foreclosures sometimes brought in enough to pay everyone, with maybe some cash left over for the defaulting homeowner/borrower.

That rarely happens today; more likely, the holder of the first won't even get fully paid off, to say nothing of junior liens. If your second mortgage doesn't get paid off, it doesn't evaporate; you still owe the lender. The lender probably becomes an unsecured creditor with the right to sue, but not if it were a purchase-money loan provided by the seller or, in the case of an owner-occupied 1-to-4 unit residential building, a seller or a third-party lender.

The likelihood of being sued probably depends largely on the amount owed and the lender's assessment of your ability to pay a judgment (remember that credit application?), but also to some extent on whether the lender thinks it was taken advantage of by the borrower or whether the borrower acted in good faith but was a victim of economic circumstances.