Legal Question in Real Estate Law in California

Re: Unusual Lien Question

The creditor would certainly be in a more powerful position if it bought the first two liens. However, even the holder of the lien now can bring proceedings to enforce his judgment by selling your house--most do not because they know they'll get paid back with interest when the house is eventually sold. Still, the risk is there.

Thus, not only can the second lienholder force a sale, but any later ones can too. It would have to be worth it for them, though, in that you'd have to have enough equity to cover the earlier liens, your statutory exemption value, and their own lien, plus costs of the sale.

Re: Unusual Lien Question

Not so unusual.

The mortgage can be foreclosed only if the terms of the note or obligation are in default.

The judgment lien though can be foreclosed by judgment enforcement proceedings. The problem though is that to protect the judgment lien from being wiped out by the prior mortgage, the creditor will have to make sure that the 1st mortgage payments continue unabated. Frequently they don't want to do this. If the judgment creditor buys the mortgage lien, he can foreclose on the judgment, and if the payments on the first stop, he can foreclose on the first as well.

Re: Unusual Lien Question

Any creditor who has obtained a judgment against you can record an Abstract of Judgment against your property which becomes a lien on the property. Once that lien is created, the creditor can then apply to the court for an execution sale of your home.

Generally, creditors do not do this because any pre-existing liens on the home must be paid, prior to the creditor receiving any money. Further, in California, certain exemptions exist to protect homeowners from a total loss of the equity in a home. The amount of the exemption applicable to real property depends on your age, and other factors realted to your circumstances. In order to make it worth a creditors efforts, you would have to have enough equity in the home to pay off all existing liens, and overcome the statutory exemption amount. For example, if your home is worth $300,000, and (as you state) the first trust deed is $25,000, you have $275,000 in "equity." Assume further, that your statutory exemption is $75,000, a creditor would have $200,000 of equity remaining after the sale to satisfy its judgment. Assuming a judgment of less than $200,000, the creditor would be likely to enforce the debt by selling your house.

In your case, assuming you have equity of more than $25,000 (which you probably do), the creditor who currently has the $4,000 judgment against you could potentially sell your home since it only has to overcome the exemption amount together with the amount remaining on the first trust deed.