What To Do If You Are Upside Down and Unable to Make Payment on Notes Secured by First and Second Deeds of Trust on Your Home

You Are Upside Down and Unable to Make Paymentd on Notes Secured by First and Second Deeds of Trust on Your Home. What do you do?

You might owe more money on your notes secured by a first deed of trust and on the note secured by the second on your home than what the property is worth.

What do you do?

Here in California we have the ONE ACTION RULE, the law preventing lenders from both foreclosing and suing you on the note. If the lender chooses the non-judicial foreclosure process, he is then prevented from suing you on the note itself. However, if the lender fails or declines to foreclose on the note, he retains the right to file and prosecute a civil lawsuit and get monetary judgment against you.

This could happen to you. It is more common these days.

If you are here in California and upside down on both the note secured by the first and that secured by the second on your home, always make all payments on the first if possible. Do whatever it takes to prevent the first from foreclosing. If you are unable to make payments on the second note, always force that note holder to foreclose. Once the holder of the second starts non-judicial foreclosure, he chooses that route and is prevented from filing a separate lawsuit for monetary judgment.

What is happening here in California is that some folks with note obligations secured by a first and a second on their home decline to make payments on either note. Their thought is to allow the holders to foreclose and to let the property go.

WAIT A MINUTE.

In that situation, the holder of the first can foreclosure and wipe out the deed of trust that was the security for the holder of the first. However, since that second holder did not exercise his right to foreclose, he could then file and prosecute a lawsuit against you for damages, the monetary amount of the note.

Think about this carefully. It is complicated. Seek and retain the advice of qualified counsel in your state and jurisdiction.

Posted by Harrison K. Long, Realtor and Broker, Explore Properties Group, www.ExploreRealEstate.net.
Also a lawyer licensed by the State Bar of California since 1976.