1st Mortgage Foreclosed and 2nd was Wiped Out- Maybe Not!

This does not cover all of the details exactly but written to bring up some thoughts.

If a home owner has a 1^st and 2^nd mortgage in most cases when a home owner has trouble making payments the 1^st will file foreclosure. In Sacramento, the 2^nd typically won't as there is no equity left to cover their balance so why spend more money chasing after lost money. So when the 1^st takes the home back through foreclosure most people say the 2^nd was wiped out.

Since the 2^nd did not take any action, they have 4-years from last payment to file a judgment. So 3-years down the line a family thinks their past foreclosure mess is far enough behind them to buy another home. They check with a loan officer who pulls a credit report which unknowingly notifies the old holder of the 2^nd deed (the credit agencies already sell inquiry info). They do some research on the family, seek judgment and then come after them for the loss on the 2^nd mortgage note from a few years back. Family has very little choice at that point, possibly file bankruptcy to avoid judgment but then have to wait several more years to clean credit up again in order to buy. Other option, is settling with old holder of 2nd mortgage.

So, let's say that when Bof A (not picking on them) first originated the 2^nd their records showed the client had a 780 fico with full doc income. They then sell that clients note off to a collection company for 10% of original balance. Maybe 680 fico client they sell off for 5% of balance.

The banks are going to be looking for every option possible down the line to re-coop their losses. This also helps explain why even if paid a few thousand dollars will not agree to a short sale because if they settle they give up opportunity down the line. They will write it off on their books now but when the collect later it is pure profit (collectors paid accordingly).