Legal Question in Real Estate Law in California

Re: Voiding a 2nd mortgage

No, at least not the way most mortgages are written. Among other things, as long as you keep making payments on time, neither lender will ever become seriously interested in the value of your property. Further, would it make sense for a lender to make a loan if all you had to do to get out of it (void it) was let your property get so run-down that its value fell?

I think I understand the source of your confusion, however. What happens when the value of a property drops below the amount due on the senior loan is that the holder of the junior loan has no collateral, and is thus in the position, for practical purposes, of being an unsecured lender.

The borrower is in a potentially more threatening position against a lender that has thus become unsecured, because lenders who have lost their security through no fault or action of their own are not subject to the collateral-first rules nor to most of the antideficiency rules. The lender on the 2nd may not be economically able to foreclose, but is not prevented from going after the defaulting borrower's other assets in a suit on the note.