What happens to HUD lien when 1st mortgage is extinguished?

[perplexing]

What is the name of your state (only U.S. law)? NY

I'll try to be as succinct as possible...

Our house was in foreclosure, the bank dismissed the suit voluntarily *after* the statute of limitations expired, and they can no longer collect. (They tried later to vacate the dismissal on the previous suit but that was denied, the appeal period for that has passed, and they are time-barred from filing a new foreclosure action.) In the coming year, we will be petitioning to have the mortgage lien extinguished.

Around 1 year into the loan mod process, at the beginning, the bank offered a partial claim (HUD) to bring the mortgage current but said to continue not paying because the loan had not been modified yet and we'd have to be a few months behind, all over again, to qualify for a loan mod. We did not make a payment on it, per their direction, and made application after application for a loan mod (always marked incomplete but never accepted and rejected, despite PROOF that it was complete and received in multiple ways.)

That partial claim is a 2nd lien, subordinate to the first. Payment of that 2nd lien must be made when 1) the 1st mortgage is paid or satisfied, 2) we no longer reside in the home, or 3) when the property is sold or refinanced.

What about when the 1st mortgage is extinguished, not paid or satisfied?

HUD specifies that the lender's recourse for collection of the Partial Claim is foreclosure. The lender cannot foreclose. The 1st lien will be extinguished. What happens to the 2nd lien then?

TIA!

 

[LdiJ]

What is the name of your state (only U.S. law)? NY

I'll try to be as succinct as possible...

Our house was in foreclosure, the bank dismissed the suit voluntarily *after* the statute of limitations expired, and they can no longer collect. (They tried later to vacate the dismissal on the previous suit but that was denied, the appeal period for that has passed, and they are time-barred from filing a new foreclosure action.) In the coming year, we will be petitioning to have the mortgage lien extinguished.

Around 1 year into the loan mod process, at the beginning, the bank offered a partial claim (HUD) to bring the mortgage current but said to continue not paying because the loan had not been modified yet and we'd have to be a few months behind, all over again, to qualify for a loan mod. We did not make a payment on it, per their direction, and made application after application for a loan mod (always marked incomplete but never accepted and rejected, despite PROOF that it was complete and received in multiple ways.)

That partial claim is a 2nd lien, subordinate to the first. Payment of that 2nd lien must be made when 1) the 1st mortgage is paid or satisfied, 2) we no longer reside in the home, or 3) when the property is sold or refinanced.

What about when the 1st mortgage is extinguished, not paid or satisfied?

HUD specifies that the lender's recourse for collection of the Partial Claim is foreclosure. The lender cannot foreclose. The 1st lien will be extinguished. What happens to the 2nd lien then?

TIA!

Does the same bank have both the 1st and 2nd liens? If not, you are wrong that the 2nd lien cannot foreclose.

 

[perplexing]

Does the same bank have both the 1st and 2nd liens? If not, you are wrong that the 2nd lien cannot foreclose.

The 1st lien is held by the lender. The 2nd lien is held by HUD, has no payments, accrues no interest, and it is not due until the mortgage is either satisfied/refinanced, sold, or we no longer live in the property.

The bank cannot foreclose on its only lien: the 1st one.

The 2nd/HUD lien just sits until one of the above triggers calls the entire amount due.

 

[Zigner]

The 1st lien is held by the lender. The 2nd lien is held by HUD, has no payments, accrues no interest, and it is not due until the mortgage is either satisfied/refinanced, sold, or we no longer live in the property.

The bank cannot foreclose on its only lien: the 1st one.

The 2nd/HUD lien just sits until one of the above triggers calls the entire amount due.

I would argue that the 2nd lien may have been triggered.


ETA: Extinguished and satisfied could be nearly synonymous in this case.

 

[perplexing]

I would argue that the 2nd lien may have been triggered.


ETA: Extinguished and satisfied could be nearly synonymous in this case.

No. The 1st lien has not yet been extinguished so nothing could have triggered the second... that's why I'm asking. I want to know if it will be, once it is, not if it *could* be, and hoped some others here might have some real knowledge or experience in that. I have not been able to find any protocol or precedent for this situation, nor has our attorney. If it is triggered by the 1st lien being extinguished, I'd like to be ready with the funds necessary.

 

[Zigner]

No. The 1st lien has not yet been extinguished so nothing could have triggered the second... that's why I'm asking. I want to know if it will be, once it is, not if it *could* be, and hoped some others here might have some real knowledge or experience in that. I have not been able to find any protocol or precedent for this situation, nor has our attorney. If it is triggered by the 1st lien being extinguished, I'd like to be ready with the funds necessary.

This is a question for your attorney - s/he has the research tools necessary.

 

[FlyingRon]

A lower priority lien moves up in position when an earlier one is satisfied or otherwise removed.

 

[HUD-1]

"Payment of that 2nd lien must be made when 1) the 1st mortgage is paid or satisfied, 2) we no longer reside in the home, or 3) when the property is sold or refinanced."

Is this the EXACT language from your Partial Claim Note? The reason I ask is that I have seen very different language in partial claim notes.

 

[perplexing]

"Payment of that 2nd lien must be made when 1) the 1st mortgage is paid or satisfied, 2) we no longer reside in the home, or 3) when the property is sold or refinanced."

Is this the EXACT language from your Partial Claim Note? The reason I ask is that I have seen very different language in partial claim notes.

It's very bizarre, actually. It's marked for California (we're in NY), as "Schedule A" - HUD Instrument. The Borrower's Promise to Pay says the Borrower pays the Lender (personal obligation was eliminated in BK years ago) for the subordinate note BUT the 2nd lien itself is held by HUD, per county records.

Manner of Payment is written as follows:

A) Time

On [30 years from original mortgage origination date] of insured mortgage or, if earlier, when the first of the following events occurs:

1) Borrow has paid in full all amounts due under the primary Note and related mortgage, deed of trust or similar Security Instruments insured by the Secretary, or

2) The maturity date of the primary Note has been accelerated, or

3) The Note and related mortgage, deed or trust or similar Security Instrument are no longer insured by the Secretary, or

4) The property is not occupied by the purchaser as his or her principal residence.

B) Place

Payment shall be made at the [FHA office in D.C.] or any such other place as Lender may designate in writing by notice to Borrower.

_______________________

Now that I'm looking at it, I'm not sure what they were thinking... the maturity date of the primary Note had already been accelerated at the time of this partial claim and it was not accompanied by a loan modification or reaffirmation of the original loan. And, the Note and related mortgage stopped being insured by FHA in 2013, when they paid the lender and the loan was subsequently sold AGAIN.

It also says that upon filing for bankruptcy protection, the agreement would be terminated.

 

[perplexing]

And just in case it seems like I'm being a bit curt to other posters, I am grateful for help but I am actually looking for specifically this information. I know quite a bit about foreclosures, liens, and possible motions available for later use; I'm not asking for general information but very much this exact situation. I don't expect people to answer when they don't actually know the answer. Much of what's happening now is new... precedent either does not exist yet or is difficult to find. I drafted my attorney's opposition papers initially and found cases to support each point myself. What I'm looking for is someone who knows of this situation happening in other cases and what regulation accompanies HUD 2nd liens for Partial Claims in this scenario, not general advice on foreclosures and liens.

If no one knows, that's okay. This is just a shot in the dark.

 

[HUD-1]

#3 will kick in if the first mortgage is extinguished. The FHA/HUD insurance will be terminated and the lender will not be able to put in a claim with HUD with regards to the first mortgage. The partial claim note can be paid off at any time. Contact info:

Secretary-Held Assets Servicing Contractor
Novad Management Consulting can be reached at:

Novad Management Consulting
Shepard's Mall
2401 NW 23rd Street Suite, 1A1
Oklahoma City, OK 73107

Toll-Free: (877) 622-8525
Fax: (800) 489-1733

General email boxes are as follows:

All Borrower inquiries: customerservice@novadconsulting.com
Payoff requests for all Secretary Held mortgages: payoffs@novadconsulting.com
HECM servicer inquiries: hecm.servicing@novadconsulting.com
Novad Management Consulting is responsible for FHA Single Family Secretary-Held Assets including:

- Partial Claims subordinate mortgages

 

[perplexing]

#3 will kick in if the first mortgage is extinguished. The FHA/HUD insurance will be terminated and the lender will not be able to put in a claim with HUD with regards to the first mortgage. The partial claim note can be paid off at any time.

The lender submitted the claim for the first mortgage and was paid out by FHA in 2013. We received notification of this.

HUD directs, in the Partial-Claim Agreement, the Borrower to pay the Lender for the 2nd lien (HUD Partial-Claim) at the office (in D.C., at the location described in the Subordinate Note) but not to them, despite HUD being the holder of the 2nd lien. This agreement and subordinate note, however, was terminated with the BK filing in 2013... so where does that leave it? Was the lender responsible for paying HUD back initially, then we were to pay them, since recourse on their security (foreclosing) is no longer an option?

I suppose we could just challenge both liens, succeed in extinguishing the first, and have HUD confirm that we pay them directly in order to remove the second. The goal is to acquire clear title for an eventual sale, when our children have graduated high school.

 

[HUD-1]

oh, ok. The lender got a claim paid but was unable to deed the property to HUD, so no doubt the claim was reversed. In any event, for repayment info on the partial claim, call that NOVAD number...

 

[perplexing]

oh, ok. The lender got a claim paid but was unable to deed the property to HUD, so no doubt the claim was reversed. In any event, for repayment info on the partial claim, call that NOVAD number...

Thank you! I'll plan on having funds available when the 1st is extinguished then.