stateoconfusion
Junior Member
What is the name of your state (only U.S. law)? Texas and Utah (see below)
We have a deed of trust securing a loan we made of several thousand dollars on a property in Texas. The property is a commercial property not a home (I think that makes things easier?). The borrower hasn't paid in several months so we would like to foreclose.
Our lien is in second position behind a bank loan. The borrower is current with the bank, but the note and trust deed for the bank loan have a "due on sale" clause saying the bank can accelerate their loan on transfer of the property, involuntary or not, and the note also says foreclosure or forfeiture proceedings constitute an "event of default." The bank is from Utah and their docs say they fall under Utah law (that's where Utah comes in).
So my general understanding is that when you foreclose a second lien the lienholder can bid on credit up to the amount of their lien, and the purchaser takes the property subject to the first lien. But does that mean the purchaser has the right to take over the original borrowers position on the loan and continue making payments, or can the bank point to the "due on sale" clauses in their docs and say "pay us the whole balance now or we'll foreclose on YOU"?
If the bank can do that, it seems obvious that no one will bid at our foreclosure sale unless they already have enough cash to also pay off the bank. And while we would be able to step in and make the payments to the bank that the borrower has been making, we wouldn't be able to pay off the bank loan immediately. Does that foreclosing would be futile if we're hoping to take over the property?
We have a deed of trust securing a loan we made of several thousand dollars on a property in Texas. The property is a commercial property not a home (I think that makes things easier?). The borrower hasn't paid in several months so we would like to foreclose.
Our lien is in second position behind a bank loan. The borrower is current with the bank, but the note and trust deed for the bank loan have a "due on sale" clause saying the bank can accelerate their loan on transfer of the property, involuntary or not, and the note also says foreclosure or forfeiture proceedings constitute an "event of default." The bank is from Utah and their docs say they fall under Utah law (that's where Utah comes in).
So my general understanding is that when you foreclose a second lien the lienholder can bid on credit up to the amount of their lien, and the purchaser takes the property subject to the first lien. But does that mean the purchaser has the right to take over the original borrowers position on the loan and continue making payments, or can the bank point to the "due on sale" clauses in their docs and say "pay us the whole balance now or we'll foreclose on YOU"?
If the bank can do that, it seems obvious that no one will bid at our foreclosure sale unless they already have enough cash to also pay off the bank. And while we would be able to step in and make the payments to the bank that the borrower has been making, we wouldn't be able to pay off the bank loan immediately. Does that foreclosing would be futile if we're hoping to take over the property?
