I was recently contacted by an individual asking for help. I did not have an answer for her and I advised her to speak to a Real Estate Attorney. I wanted to post her situation and see if anyone had an answer.

Jennifer had a first and second with Country Wide Home Loans (where she was employed). She got behind on her first, but stayed current with her second. Country Wide sold her first to Company A. Jennifer knew she was behind, so she contacted Company A to advise them and see if she could work something out. Company A advised that they didn't have any of her loan information as of yet and to wait about a month and call back. Jennifer continued making payments on her second in the meantime.

Jennifer is now about 4 months behind on her first. She contacts Company A about her loan and they advise that they sold her loan to Company B. So she contacts Company B and advises that she is very far behind and wants to work something out. Company B advises that they dont have her information and to call back in a month. A few weeks later she receives a notice that her property is in foreclosure. She contacts a mortgage broker about refinancing her property. He advises her not to worry and he will handle everything. So she doesn't pay attention to any more notices while she waits to refinance.

After not hearing from the loan officer for about 2 weeks, she calls and calls him and can't get a hold of him. She then calls Company B about her first and they advise that it is slated for foreclosure sale in 2 days. One week later she gets an eviction notice that Company B now owns the property and she has 30 days to vacate. Two weeks later she gets a bill from her second mortgage and she calls them just to make sure that the second was taken care of. They advise her that the loan is still open and that she still has to pay the payment. She tells them that the property was sold and she doesn't own it anymore and they told her that she stills has an open loan in her name and that she must pay.

Here is where I don't understand, how does the second still stay on the property. Shouldn't the second mortgage have to be foreclosed as well, since the first mortgage foreclosed, regardless if she was current?

Any help understanding this would be greatly appreciated.

When the 1st foreclosed it 'wiped off' the second lien, but it didn’t 'wipe off' Jennifer’s obligation to pay it. She still owes them the money.

It almost sounds like maybe she’s thinking that when the 1st foreclosed they paid off the second lien? They didn’t and they won’t UNLESS when they sell the property, there are surplus funds (additional money after the 1st is paid in full including their attorney fees and foreclosure expenses), and in that situation the surplus funds are then used as payment toward other liens (which actually doesn’t just automatically happen, there’s a legal process they have to go through first).

You should be aware that I’m not an attorney, but I did spend 15 years working in mortgage servicing. It would be a good idea for Jennifer to talk to an attorney.

When mortgages are sold, they usually have a 90 day period to get records updated but the borrower should not be charged with errors during this time period. But the problem here is no payments were made and had they been, there might have been a chance of avoiding foreclosure and getting the payment record on track taking advantage of the 90 day loan transfer period that forbids adverse credit reporting. At this point, she may want to sell the place and pay off everyone. Vegas is a strong market, so hopefully there is enough value to sell the property on her own before the foreclosure is completed to keep additional costs from being added on postforeclosure.