Things Junior Lien Holders Should Consider Before Foreclosing
When a borrower is in default, the holder of a junior deed of trust is often faced with a difficult decision. The junior can do nothing and wait for an indefinite amount of time for the senior lien holder to foreclose and risk being a sold out junior, sign off on a short sale, sue on the note after the senior’s foreclosure, or elect to institute their own foreclosure proceedings. In addition to determining whether there is any equity in the property, before electing to foreclose a junior should consider the following:
The Cost of Foreclosing
Foreclosure and sale proceedings are not without cost to the lien holder. Some of the costs include the appraisal report, title report, county recorder’s fees for filing the notice of default and notice of trustee’s sale, and fees paid to the trustee for holding the sale and preparing the trustee’s deed upon sale. The fees paid to the trustee can vary from a fixed fee, to a percentage of the total sale amount.
Senior Lien Holders
A common misconception is that all liens are wiped out as a result of the foreclosure. However the property remains encumbered by senior lien holders of any kind. This means that the purchaser of the property at the trustee’s sale, whether the junior lien holder or a third party, will take the property subject to any senior liens.
Unpaid Property Taxes
Regardless of priority, property taxes are not wiped out upon a foreclosure sale. The total amount of unpaid property taxes and any delinquent fees will still be owed.
If the property is occupied at the time of the trustee’s sale, further legal action such as eviction proceedings may be necessary to obtain possession of the premises. Unlawful detainer proceedings could take anywhere from thirty days to over six months. This could result in attorneys’ fees and additional carrying costs.
Other factors to consider if the junior becomes the purchaser at the trustee’s sale are the condition of the property and costs associated with a traditional sale of the property such as maintenance, insurance, marketing and broker’s commissions at the time of sale.
Working with an experienced realtor and attorney can help a junior lien holder come to the best decision in this turbulent real estate setting.