2nd Lien, Borrower Made a Payment. Still Enforceable?

[Gary A.]

Hello,

I've come across a 2nd lien which is a well drawn up note that the borrower never paid on. Payments were due from '08 - '13 but the borrower told the lender he didn't have the money when it came time to pay each month. The lender is a novice investor and didn't pursue the money at all. He never gave the borrower any sort of indication that the debt was forgiven either.

The note is well written. Property is in good condition and the same borrower owns it. No other liens. Will check borrower's credit as well.

I'm wondering if there was some law or rule where the borrower is forgiven or if the borrower isn't responsible for the debt any longer because he never made 1 payment on it. I feel this debt is still enforceable but maybe someone here knows of some edge case where it's not. 

Note is in CA.

Please advise. Thank you!

[Dion DePaoli]

OP there is a bunch of information missing here that would be paramount to giving you any advice.  To mention the borrower didn't have any money each month is a pretty huge red flag.  Without understanding that backstory, the loan could be a high cost loan (Section 32) which if not originated properly could be void.  If it has usurious interest, it could be void.  The list goes on...

It is typically never a good sign that somebody made a loan and didn't try and collect.  That makes me lean more toward a predatory loan the originator didn't want to enforce since most lenders are not charities.  So it depends on how it was made.

The loan of topic is mentioned to be in 2nd position but then later in the post it is mentioned there are no other liens.  Do you mean beside the first?  If the subject lien's security instrument recorded? All you mention is the note.  

The use of funds will have a large impact on the collection of the loan.  Contract SOL can run 4 years.  Construction loans can be argued with different terms.  Other arguments have used time after the recorded (if any) maturity date.  So it all depends on what you really have.

Deficiencies are not allowed on primary residence purchase money loans.  So this too may create a barrier to collect.  

Your best bet is take the entire loan file to a debt attorney in CA and have them review it for you and see what they say in regards to collectability.  As Wayne mentions, 8 years is a long time and it really sounds like this has hair on it from the start.  You need to rely on someone who can ascertain the whole story on the loan to make sure.  Good Luck.