Hi:
I'm hoping someone here has an answer.
I funded a loan in California secured by a 2nd DOT at $399k behind a $633k first @2.85% 30 year fixed- three years into its term. The value of the property today is north of $1.6mm it appraised higher but that is my number. In the event of a default my loan terms provide me the right to advance the payments on the (senior) first and add that amount to my principal balance and accrue interest on the advance at the default rate of interest of my junior note.
So assume a default on both loans-(1st & 2nd) and I advance the payments on the first loan and add that to the balance of my loan, if I had to foreclose and I wipe any junior liens to my note and I'm the only one at the trustee's sale that bids, can I just continue making the payments on the first and rent the property out, or do I have to payoff the first.
Obviously this is unlikely to happen but I'd like to understand because I have heard differing opinions from people that really should know this.
In a worse case scenario this can make a big difference; in the event of a material decline in RE value. The right to be able to keep a 2.85% interest note in place could make all the difference in being able to cash flow through any disaster vs being caught in a liquidity squeeze.
The terms of the first state that it is not assumable and it includes a due on sale clause.
I was under the understanding that junior lienholders have rights, but now I'm not sure.
I'm interested in hearing both what happens as a matter of practice as well as what the law states (CA). You can also assume that the property value never falls below the principal balance of the first but obviously may have fallen below the combined loan amounts.
Thank you in advance,
Tim
