MOVING INTO FIRST POSITION: PRIORITY OF LIENS

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IF YOU HAVE A SECOND MORTGAGE, HELOC OR OTHER JUNIOR LIEN ON YOUR PROPERTY (LIKE AN ASSOCIATION LIEN FOR NON-PAYMENT OF MAINTENANCE), THAT MIGHT JUST BE YOUR TICKET OUT OF THIS MESS.

I would add that if you are the holder or the attorney for the holder of junior liens, you should pay careful attention, because it is possible if not likely that you will have an opportunity to improve the value of that lien and at the same time clear the title with the homeowner such that the predatory loan defenses and title defenses disappear forever.

While the judiciary has been slow to apply the normal requirements of law, procedure and prioritization of real estate interests, that has only been apparent where the homeowner is contesting a foreclosure and the presumption in the Judge’s mind is that you’re a deadbeat who is trying to use technical gimmicks to delay or get out of a jam. In several cases we have reported here the rules were easily applied when the party seeking relief was an institution seeking to perfect its lien and establish its priority in the chain of title.

What I am suggesting here is that a deal between a junior lien holder with no equity covering their current position and the homeowner with an uphill fight on their hands could result in a favorable outcome for everyone except the first lien-holder. The following is a hypothetical scenario executing this strategy:

• John Jones owns a house worth $75,000. The first mortgage is $200,000 and the second mortgage is $50,000. The original appraisal was $270,000. Jones also has a lien on his property for non payment of assessments to his condominium association. Each lien under law is subject to the procedure of foreclosure.
  
• Scenario 1: The association sues to foreclose claiming the other lien holders have not perfected their liens and citing the deficiencies we all know from this blog. Homeowner settles or redeems property after Association has obtained a judgment placing it in first position. Homeowner is defendant is foreclosure of Association lien. If the Judgment states that the first lienholder failed to perfect their security interest, then the association has done your work for you.
• Scenario 2: The holder of the second mortgage or HELOC which now views the loan as virtually worthless, or at least without any security covering the the loss, brings a quiet title action with you jointly establishing them is first position. In exchange for funding the litigation, the second place holder gets into first place, establishes that the first holder did not perfect their security interest and gets paid in full with or without a bonus.
  

• Scenario 3: Homeowner is more creative and gets third party to purchase the holder of the junior lien and uses the same tactics as above. But without it appearing as bank vs. bank, the likelihood is that the court will see it as a homeowner maneuver and resort back to the wrongly conceived presumptions that makes all this necessary in the first place. A smart credit union or small community bank would do very well with this and could pilot it one house at a time.

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Tags: ASSOCIATION LIEN FORECLOSURE, foreclosure, HELOC, JUNIOR LIEN, LIENS, PERFECTING SECURITY INTEREST, PRIORITY OF LIENS, SECOND MORTGAGE, SENIOR LIEN
Posted in evidence, expert witness, Modification, Motions, Pleading, securities fraud |