Chase Trust forecloses on the 1st, does that wipe out my Chase HELOC?

[Ambling]

I've scoured the forum and found similar situations but not exactly the same.

I have a 1st lien originated by a lender who immediately assigned it to JP Morgan Chase NA. Subsequently, JP Morgan Chase NA pooled it into the JP Morgan Alternative Loan Trust.

My HELOC is owned by JP Morgan Chase NA.

The question is, if the JP Morgan Alternative Loan Trust forecloses on the 1st will they wipe out their ability to recover a deficiency on the HELOC? In other words, is this a case of Chase owning both notes?

[Moe Bedard]

If you have no equity and the property is foreclosed on, then unless the 2nd lien holder (2nd mortgage) was to also purchase the 1st lien, the 2nd mortgage would be "cleared" and that lender would receive nothing.

But they may move it to a collection account if they wish and try and seek a possible judgment or wage garnishment. The second lender can also charge-off any unpaid debt after getting a part of the sale proceeds when the first loan is paid off. This means that the second lender considers the debt as uncollectible. But you still don’t lose your obligation to pay off second mortgage after foreclosure.

In case you don`t pay off the charged-off debt, it may be considered as income and depending upon the state laws, you may have to pay tax on the unpaid debt. However, if your lender forgives the unpaid debt, you may not have to pay tax provided you qualify for tax relief on mortgage debt forgiveness.

I would seek an experienced attorney versed in tax and real estate law to consult with.

[Ambling]

Thanks for the reply Moe.

But my question is how will a court define "the same lender" if I argue that the 1st wiped out its own 2nd through the foreclosure of the 1st. Is JP Morgan Chase NA the same lender as the JP Morgan Alternative Loan Trust?

[Paul Molinaro Esq.]

NO LEGAL ADVICE HERE - JUST GENERAL INFORMATION - ANY SIMILARITIES TO ANYONE'S ACTUAL SITUATION IS JUST ONE HECK OF A COINCIDENCE.

That is a hot question in the field of mortgage law right now... the argument used to be that the second was a victim, a "sold out junior" was what it was called, but then people argued that when the same lender owns the first and second loans it is not just a victim... now with loans being transferred so often, the chances are the same lender may have owned both loans... and the argument against the sold out junior rules gets raised.

- Paul

[Ambling]

So the short answer is that this has no precedent in case law?

It seems to me that the servicer is acting as an agent to the holder of the note. When the servicer decides to foreclose on the 1st and wipe out a HELOC that the servicer also controls, then George versus Simon applies to protect the borrower.