LOS ANGELES BANKRUPTCY BLOG
Truths About Foreclosure
Sep 28, 2010
The Los Angeles Times published an article earlier this year about the growing number of homeowners who are making the decision to surrender their home and let the lender foreclose, because their homes are worth so much less than the mortgages owed against them.
View article here: http://articles.latimes.com/2010/mar/17/business/la-fi-walkaway17-2010mar17
Unfortunately, this article left the wrong impression that borrowers are simply able to walk away from all their mortgage loans. As bankruptcy attorneys who help clients in these circumstances every day, we know that the large majority of homeowners with problems paying their home loans have both a first and second mortgage on their home.
Unless the second mortgage was used to purchase the property in which the borrower resided, the lender holding the second (or third) mortgage can sue the borrower on the balance owed on the underlying Note as a "sold-out junior lienholder" after the first mortgage lender completes its foreclosure sale. This will be the case if the borrower obtained the second mortgage as part of a refinance loan or as a home equity line of credit or second mortgage after the property was purchased.
Many borrowers do not realize that this liability to the junior lender remains after the senior lender forecloses, and a lot of those borrowers end up needing the service of a bankruptcy attorney when they receive a letter from a collection agency or are served with a lawsuit by the junior lender.
