Can my second mortgage holder sue me for a deficiency after my property foreclosed (non-judicial foreclosure), in Washington?
I had an 80/20 loan on a property, a condominium, and I ended up foreclosing on the property. The property went back to the bank (Wells Fargo) and hasn't been sold because it isn't worth anything (-200k).
The second mortgage company (US Bank) is attempting to collect the remaining amount (52k), and threatening litigation, to include garnishing my wages and putting a lien on other property. I have since gotten married and am living in a house that my wife purchased before we got married.
Can the second mortgage sue me, put a lien on my new property or garnish wages? Does anyone know of this actually happening? I am probably going to work out a settlement, unless someone can give me advice to the contrary.
I am willing to retain a lawyer to defend me.
Under the circumstances which you described, US bank can sue you to collect the debt evidenced by the promissory note which had been secured by the second deed of trust. If a judgment is obtained, that judgment can become a lien on your property. (The separate property of your new spouse might not be subject to the judgment obtained against you for your obligation before the marriage, but you should certainly consult an attorney if you are sued.) The judgment can also be the basis for garnishment of your wages. You may want to consult a bankruptcy attorney to discharge the US Bank debt so this problem does not become part of your marriage.
US Bank can pursue collection of its promissory note because the deed of trust securing that note was not foreclosed.
In Washington State a home loan involves two legal documents. The first document is a promissory note which evidences the terms of the debt. The second document is a deed of trust which creates a lien against the property which is security for the performance of the obligation set forth in the promissory note.
One of the real advantages available to the lender in connection with a deed of trust is the ability to cause the property subject to the lien of the deed of trust to be sold at a trustee's sale without going to court to obtain a judgment. When a lender uses this non-judicial power of sale included in a deed of trust to cause the property to be sold, the promissory note secured by that deed of trust is deemed to be fully satisfied. However, only the promissory note secured by the deed of trust under which the property is sold is deemed to be satisfied. Any other promissory note remains unsatisified.
The specific statute preventing a lender from collecting more money on a promissory note after the property is sold under the deed of trust securing the promissory note is RCW 61.24.100(1), which provides in part as follows: "(1) ...[A ]deficiency judgment shall not be obtained on the obligations secured by a deed of trust against any borrower, grantor, or guarantor after a trustee's sale under that deed of trust."
US Bank did not cause the property to be sold under the deed of trust securing its note. Therefore, US Bank did not lose the right to attempt to collect on its promissory note. A bankruptcy proceeding may be advisable to discharge the debt, allowing you to move forward with a fresh start free of the burden of any debt related to the former residence. Your new spouse would not need to join you in your bankruptcy case.
Your agreements with the second mortgage company almost certainly give the company the right to sue you if your loan is not repaid in full. WA state laws do not prohibit the company from suing you for the debt you owe.
Depending on your finances, you may want to check into bankruptcy as a way to resolve the loan with the company.
Since you are married, your wife's finances will also need to be taken into consideration if you think about bankruptcy.
"Can the second mortgage sue me, put a lien on my new property or garnish wages?" The answer likely is "yes" to each part.
You should review your specific facts with your attorney to find out your legal options.
If you miss too many mortgage payments, your lender can start foreclosure proceedings to take ownership of the property, but it has to follow your state's laws.