Wells Fargo suing me on Second, first is not in foreclosure yet. Is this common in Washington state?

[dynomutt]

Long story short. I am in an 80/20 for $265K. House now worth $140K. BOA on first at $1850 mo, Wells Fargo on second at $560 month. Girlfriend and I bought house together 4 years ago, we have since parted ways. I could no longer afford the $2400 a month alone, so I stopped paying 1st 9 months ago, stopped paying 2nd, 7 months ago. Received a 20 day Summons on Sunday where Wells Fargo is requesting relief for the $58K note. I haven't even heard anything from BOA, other then a monthly form letter asking me to meet with them for help, etc. I am meeting with a good attorney this week, but I was advised over the phone that due to my $70k a year income I would likely not qualify for Chapter 7, only 13. I have only $20k in CC debt, and $7K on my car. I have managed to save about $10K over the past few months. The summons also lists us as husband and wife, which we are not, if this makes a difference. Is it common to be sued on the second before the first even goes into foreclosure? Based on what I have read here over the past few months, it seems many settle the second, after the fact.

Thanks in advance,

J

[Evan Bedard]

Welcome and thanks for joining the forum.

No it is not too common at all for the second to pursue you before the first, especially when you are so far underwater... I'm assuming you haven't refinanced since you purchased the property correct?

But if your 2nd mortgage was not used to purchase the house, you are most likely not protected against the debt to the second lender. Your purchase of the house may need to be reviewed if you are not sure whether the money was used directly to purchase the house.

As for the summons: You will be required to file an "Answer" to the servicers complaint within twenty days of being served with the summons. I believe the filing fee is approximately $200 or so required to file the answer. If you do not file an answer with the court in the twenty calendar days, the lender may request a "default judgment".

[thomaspaine]

I wonder if this action is the fall out of extend and pretend. For the last 5 years the lenders have been hoping that the market will bounce back. The economic fundamentals for a bounce are just not there. The market correction is over - and we are entering a slow 'normalization' phase were housing price increases will match or be very close inflation (20 year average in King County is 2.7% so if you are 30% underwater it will be a VERY long time until you are 'in the money' again). In WA there is a good amount protection from the primary lender - but none from secondarys - regardless of if the loan has ever been refinanced or not. I expect lenders and secondary postions are finally doing the math - realizing that the market has truly become so bad that they will get nothing in the FC and are expiditing things.

Do you bank with Wells? Did they see regular pay roll deposits?

[Rockstarbob]

WOW! This is the EXACT same situation I am in. Everything I had been told was that this process would drag out. On the 6th month it was charged off and exactly 30 days later suit was filed. I am working through this now but seeing your post makes me think something is in the water. Like you I have an 80/20 with all funds being used for the purchase which was sold to me at the time as a method of getting around PMI. Thanks Wells! I have a feeling they are going to do everything they can to take me for all I am worth.

[Evan Bedard]

WOW! This is the EXACT same situation I am in. Everything I had been told was that this process would drag out. On the 6th month it was charged off and exactly 30 days later suit was filed. I am working through this now but seeing your post makes me think something is in the water. Like you I have an 80/20 with all funds being used for the purchase which was sold to me at the time as a method of getting around PMI. Thanks Wells! I have a feeling they are going to do everything they can to take me for all I am worth.

I would contact an attorney right away to go over your situation.. Here you can find legitimate lawyers who can help you, some will even charge no fee for the first consultation..

National Association of Consumer Advocates | Consumer Protection Advocates and Attorneys - Help for Consumers

[dynomutt]

Thanks you so much for taking the time to respond. I have not refinanced since purchasing. I am actually still a little bit in shock, especially after researching what Chapter 13 is. The median income for Chapter 7 in WA is $55K, unless you pass the means test, which seems unlikely for me. I knew that I would eventually get foreclosed out, but was not expecting to have to pay the $60K on the second. My own fault for being naive. I actually thought I could have all of my debt paid off in the next 6 months, but who knows what will happen now. The $26K I owe, is pocket change compared to the $60K on the note. I also randomly have some stock options and a bonus coming in March that will amount to about $13K before taxes, that has taken 4 years to vest. I also assume full disclosure on all my finances to the attorney is best?

I am curious, when you file 13 how do you survive, with no money, and no credit. What if for instance the transmission on my 4Runner goes out? What do people do that are allowed $100 a month in disposable, income after the settlement. What happens to all the cash I have saved? Again, my naivety, but it feels like I am being punished for saving all that money, as opposed to going out and spending what I should have been paying on my mortgage.

Also, how does my Ex girlfriend being on the note affect it? Wouldn't she be liable for half?

I meet with an attorney in the morning, I will update after that.

Thanks so much again for your time,

J

[Rockstarbob]

If you get any good advice let us know. I will do the same. I am currently working with a lawyer and have a very similar situation to you. Settlement might be an option.

[Rockstarbob]

I would contact an attorney right away to go over your situation.. Here you can find legitimate lawyers who can help you, some will even charge no fee for the first consultation..

National Association of Consumer Advocates | Consumer Protection Advocates and Attorneys - Help for Consumers

What practice area would be best suited for assisting with second mortgage, debt collection, and law suits?

[BustedBrokeBeaten]

Please clarify something for me. I am so confused by this post. I understand you are saying you have 80/20 loan mortgages that are both purchase money. The first mortgage with BOA has not foreclosed, right? The second has been charged off and now the bank is suing you for the amount in full? Doesn't the 2nd loan also have a deed of trust and the banks have to follow what's in the power of sale clause? Are you saying that because the 2nd has been charged off, this allow them to sue rather than have to follow the power of sale clause in the deed of trust? Sorry if this seems like a stupid question, but I thought the 1st had to foreclose before the 2nd could sue. We have an 80/20, first has not foreclosed, 2nd sent an NOI but can't foreclose because they are totally underwater. We are also in Washington.

This is very scary. I don't get it.

[Rockstarbob]

They have two options, force foreclosure or sue on the debt. Considering your home is probably worth far less than you owe on your first, your second could excercise their right to sue. This is what they have done to me and what the original poster is dealing with. My lender went straight to suit as soon as the option was possible. No attempts to settle, no attempts to work with me, just a 30 day notice and a knock on the door.

[BustedBrokeBeaten]

They have two options, force foreclosure or sue on the debt. Considering your home is probably worth far less than you owe on your first, your second could excercise their right to sue. This is what they have done to me and what the original poster is dealing with. My lender went straight to suit as soon as the option was possible. No attempts to settle, no attempts to work with me, just a 30 day notice and a knock on the door.

That's crazy and very scary. I am not prepared for something like this. Guess I need to get prepared just in case. I was hoping for a sold out junior at best which could sue but that would be further down the road than this scenario. Thanks for your response. Much appreciated.

[Octanefam]

Hmmm now this makes me a bit nervous..... We haven't walked yet but plan on to very soon meeting with Attorney on Tuesday.

Details of our situation:

First with BOA - balance is 311k

Second with Wells (not purchase money) 47k

Home value today is approx 300k

So if I keep paying on the second and stop paying on the first they can't do anything right. Then when the first forecloses stop paying on the second and then becomes sold out junior loan? Please correct me if I'm wrong.

Thanks

[ufkenmill]

Long story short. I am in an 80/20 for $265K. House now worth $140K. BOA on first at $1850 mo, Wells Fargo on second at $560 month. Girlfriend and I bought house together 4 years ago, we have since parted ways. I could no longer afford the $2400 a month alone, so I stopped paying 1st 9 months ago, stopped paying 2nd, 7 months ago. Received a 20 day Summons on Sunday where Wells Fargo is requesting relief for the $58K note. I haven't even heard anything from BOA, other then a monthly form letter asking me to meet with them for help, etc. I am meeting with a good attorney this week, but I was advised over the phone that due to my $70k a year income I would likely not qualify for Chapter 7, only 13. I have only $20k in CC debt, and $7K on my car. I have managed to save about $10K over the past few months. The summons also lists us as husband and wife, which we are not, if this makes a difference. Is it common to be sued on the second before the first even goes into foreclosure? Based on what I have read here over the past few months, it seems many settle the second, after the fact.

Thanks in advance,

J

I'm curious if TomEason from this forum has any advice here? He's always advocated not worrying about getting sued for the 2nd. Sounds like Chpt 13 is your only option but TomEason can probably give you some good advice on this one..

[SeattleShortSale]

We also got sued from WF on an underwater second in Washington State. Only way to stop a garnishment was for us to File Chapter 7 qualifying via a Means Test.

In the end we ended up settling the 2nd with Wells for around 6.5% of the outstanding balance. This only occurred after the 1st was modified with in house mod.

Our debacle took over 2.5 years to finish.
Send me a PM if you have specific questions.

[BustedBrokeBeaten]

We also got sued from WF on an underwater second in Washington State. Only way to stop a garnishment was for us to File Chapter 7 qualifying via a Means Test.

In the end we ended up settling the 2nd with Wells for around 6.5% of the outstanding balance. This only occurred after the 1st was modified with in house mod.

Our debacle took over 2.5 years to finish.
Send me a PM if you have specific questions.

What happens if you don't qualify for a BK 7? Most law suits want to settle rather than go to court, so maybe there is still an opportunity to settle before the actual court date.

[SeattleShortSale]

Im no expert even with having gone down that path already. From what I understand, if you do not qualify for a BK7 due to income being too high or assets, then you might still qualify using the means test. This is implemented by a BK attorney. They should be able to give you a fairly good idea as to whether you qualify or not BEFORE you decide.

Short of going BK chapter 7, you can go chapter 13 which we did not want, due to repayment length and also the fact that it drags on for much longer. We wanted a clean fresh start right away and this was only possible with CH7. The irony is that prior to BK, we were not able to get anywhere with our loan (2 trial mods and much run around). After the BK closed, everything moved very orderly.

While I do not consider or recommend BK lightly, it may be the logical answer to some folks here.

[Octanefam]

BK is not a route that I want to take but also don't want garnishment to happen either. So at what point does your second become a SOJL? So again would it help in continuing to pay on the second and let the first forecloses because I would still be saving 2200 month just on the first.

Thanks

[SeattleShortSale]

My understanding is that it will not become a sold out junior except in case of foreclosure.

BK is not a route that I want to take but also don't want garnishment to happen either. So at what point does your second become a SOJL? So again would it help in continuing to pay on the second and let the first forecloses because I would still be saving 2200 month just on the first.

Thanks

[wally]

We also got sued from WF on an underwater second in Washington State. Only way to stop a garnishment was for us to File Chapter 7 qualifying via a Means Test.

In the end we ended up settling the 2nd with Wells for around 6.5% of the outstanding balance. This only occurred after the 1st was modified with in house mod.

Our debacle took over 2.5 years to finish.
Send me a PM if you have specific questions.

Wow scary, I didnt know that Wells Fargo can sue homeowners. I am thinking of buying a home and I have been pre approved by Wells Fargo, i's nice to know that, thanks for the information

[Octanefam]

I should just assume that my attorney will be able to answer questions regarding this on Tuesday but I hate waiting because I don't want my walk to be delayed.... Thanks to anyone that can shed some light on what would happen to a current second and foreclosed 1st?

Thanks

[drockh]

Wow this made my quite nervous... I have a property in MN with 2 other guys and we have 222k on the first and 68k on the 2nd with wells fargo. We are underwater by atleast 80-100k on the property and are looking for ways to walk away. We are pretty certain one of our only ways out is to file BK.

[BustedBrokeBeaten]

I should just assume that my attorney will be able to answer questions regarding this on Tuesday but I hate waiting because I don't want my walk to be delayed.... Thanks to anyone that can shed some light on what would happen to a current second and foreclosed 1st?

Thanks

Are you in Washington also? Just wondering because state laws differ, which may impact getting the correct answer to this question. We were going to walk on our 1st mortgage and continue to pay the 2nd, which we did for about six months but we then decided to walk from the 2nd as well. I wonder if you should start a thread to see if anyone else is doing this or considering this, and maybe the new thread will get the attention of the master advisors out there in LS land. I'm actually surprise we haven't seen TomEason on this thread because this topic is right up his alley.

[Octanefam]

Yes I'm in Washington state and good idea about a new thread on this topic. I was hoping to see some master advisors on here to chime in but they haven't.

Thanks

[StayOrGoInWAState]

Interesting they would do this before the 1st has foreclosed? As I understand it, in WA state, when you have subordinate financing and the 1st lien forecloses non-judicially there no deficiency concerns on the 1st and the 2nd lien is extinguished BUT you are still obligated under the terms of the Note.

So while the 2nd mortgage holder no longer has a security interest in the property - 2nd lien is gone - they could still pursue deficiency on the 2nd by suing under the terms of the Note. I thought this was a pretty rare occurance but certainly is a possibility.

Hearing this does make be a bit nervous, though my plan has always been once the FC is done to settle the 2nd. I just hope I have the opportunity BEFORE they decide to pursue in court!

[TomEason]

@dynomutt

@All other interested WA members

Although I'm no expert on WA FC and mortgage law, here's my take on the situation.

FWIW, please know that lenders never use judicial FC for small residential loans in your state. They always use a TS.

The question here is whether a secured junior lender can legally sue the borrower before, and in lieu of, foreclosing.

To my knowledge, only two of the 50 states that legally allow a secured junior lender to sue the borrower, FL and MD.

In my state we have what is known as the One Action/Security First Rule, California Code of Civil Procedure Section 726(a). To simplify, the statute provides that a secured lender must FC first before they can sue.

However, as most know, in our country and in all states, any person or entity can sue any other person or entity for any reason whatsoever. However, if the suit is defended and found to be frivolous, the plaintiff and plaintiff’s attorney are subject to court awarded sanctions. Here’s a definition quoted from the USLegal.com site.

“Frivolous lawsuits are those filed by a party or attorney who is aware they are without merit, because of a lack of supporting legal argument or factual basis for the claims. Frivolous lawsuits waste time, money, and judicial resources, and fines and/or sanctions may be imposed upon a party or their attorney for filing such a claim.
Frivolous lawsuits may be filed for purposes of harassment or coercion, such as to coerce the defendant into paying more or accepting less money than is rightfully due. They may be filed due to lack of due diligence by an attorney in investigating a client's claim, or other reasons. Generally, the defendant must win the lawsuit before seeking a remedy for the frivolous claim.”

One can get another more comprehensive explanation on Wikipedia.

However, if a defendant fails to answer the plaintiff’s complaint and that plaintiff takes a default judgment, the defendant’s opportunity to defend (and win) has been lost, unless that judgment debtor appeals (which is costly and time consuming).

Fortunately, it appears dynomutt still has ample time to answer the complaint; I recommend you do so in a timely manner in order to prevent WF from taking a default judgment.

The bottom line is that if anyone ever gets sued by anybody for any reason, that defendant should always answer the complaint, even if only with a General Denial, which is very easy to do in pro se. My state has a General Denial form which makes it very easy. By filing the answer, the defendant buys time to contemplate how to proceed, i.e. whether to consult with a lawyer or ...? A savvy defendant can use many legal ploys to drag out the litigation for many months.

So, back to the question at hand. It appears that some lenders are now using this ploy as a way of getting some easy default judgments and attaching assets, and/or as an intimidation ploy to induce the borrower into settling. In short, lenders are getting desperate enough to use shady tactics like this.

Here’s what I would do if I were sued by a secured junior lender. I would answer the complaint with affirmative defenses, citing the applicable state statutes which support my case. I would also file a motion to dismiss, and a motion that the court sanction both the plaintiff and their attorney for abusing the court system and wasting the both the court’s and the defendant’s time and money. Further I’d ask the court to award me court costs and attorney fees. I might also file a counter-claim against the lender.

A final thought quoted from Wikipedia.

Impact upon filing attorney
Filing a claim that is ultimately deemed frivolous can be highly damaging to the attorney so filing. Attorney Daniel Evans writes:

[W]hen a judge calls an argument "ridiculous" or "frivolous," it is absolutely the worst thing the judge could say. It means that the person arguing the position has absolutely no idea of what he is doing, and has completely wasted everyone's time. It doesn't mean that the case wasn't well argued, or that judge simply decided for the other side, it means that there was no other side. The argument was absolutely, positively, incompetent. The judge is not telling you that you were "wrong." The judge is telling you that you are out of your mind.^[8]

[DaveFred]

TomEason,

I know that laws vary from state to state but if this were to happen in California. Would this not violate the First Action, One Action rule and let the borrower off scott free if use as a defense thus stripping the lean and precluding them from ever suing again !!

[TomEason]

Hi DaveFred

Yes, you're correct; it would be in violation of the One Action/Security First rule, as deliniated in Cal CCP Section 726(a). Although a borrower who puts up a defense will prevail in court, I've never before heard about the court awarding a lien strip. But then again, there are lots of things I've never heard of, LOL.

FYI, I posted a similar treatise but customized for California on the following thread.

Breach of Contract Suit by second lender (update)

[BustedBrokeBeaten]

Any updates on this dynomutt? Very curious as to how this is playing out.

[bythebay]

dynomutt - could you please post an update? Were you able to settle?

[bythebay]

Rockstarbob - can you update us on your situation? Were you able to settle? Fellow WA 80/20 walker here.

[Another Florida Guy]

Responding to the post from TomEason on 02-11-2012. I’m one of the unfortunate guys in Florida, one of the two states that legally allow a secured junior lender to sue the borrower. I was served papers about 30 days ago on the 2^nd mortgage. The first has not yet foreclosed. My attorney says he has seen several of these 2^nd mortgage suits recently; disturbing trend. I obviously responded (to buy time, if for nothing else).

Chapter 7 is not an option, and due to my income vs. debt level, Chapter 13 is not attractive either (yes, this is as strategic of a default as they come). Do I have any other option than to settle? I do not want them to see my financials—so what % should I expect to have to settle for a “no look” offer?

Thanks.

[Another Florida Guy]

I responded to a note further down the string. I also have a 2^nd with Wells, and was served papers 30 days ago. I live in Florida, so apparently they can do that before the 1^st completes the foreclosure. Have you tried to settle? At what % of the debt?

Thanks and good luck.

[bythebay]

I’m one of the unfortunate guys in Florida, one of the two states that legally allow a secured junior lender to sue the borrower.....
My attorney says he has seen several of these 2^ndmortgage suits recently; disturbing trend.

I don't think this trend is limited to Florida. I saw this article yesterday about unscrupulous companies popping up who buy sold-out juniors and then sue based on a mortgage fraud claim: Texas firm targets Calif. homeowners with foreclosed 2nd mortgages | California Watch

insane.

I wish I had some advice to offer you. Hopefully others more knowledgable will. We are probably going to be in the exact same situation re. bankruptcy options and seeking a "no look" settlement in a likely suit so will be following your case closely. Please keep updating on loansafe. Since the other people going through this haven't been posting, we have little info to know what to expect.

[TomEason]

bythebay

Thanks for your post.

That isn't at all on point. And it's old news. That Texas firm has been suing borrowers for money due on SOJLs, a completely different situation. Plus the outfit, Heritage Pacific is alleging fraud in the loan applications.

Heritage Pacific is hoping that unwary debtors will be intimidated into settling or that the defendants won't respond, and Heritage will take a default judgment.

Another Florida Guy is facing an altogether different situation where a secured junior lender has sued him prior to a FC by the 1st lender, and in lieu of a FC by that secured junior (2nd) lender.

[bythebay]

OK - point made. Maybe it is a matter of perspective. To me, a lawsuit on the 2nd is a lawsuit - regardless of where it happens in the foreclosure timeline, the dilemma being faced is the same.

I guess my point in posting the story was that it was something new (to me at least) for a co. to buy out the loan with the specific intent of pursuing a default judgement instead of the usual collections route. It made me wonder if other similar kinds of outfits might start cropping up and we might start seeing an increase in suits on 2nds. Maybe there could be a new strategy thread posted about options for folks dealing with that scenario - or an addendum to the "Strategy for Settling 2nds" thread.

But you are right - AFG is being sued by the original lender and not by whoever it was sold out to - so this is very different than the link. Sorry for the tangent.

[TomEason]

Hi bythebay

Thanks for your follow-up.

I respectfully but wholeheartedly disagree with this statement

Maybe it is a matter of perspective. To me, a lawsuit on the 2nd is a lawsuit - regardless of where it happens in the foreclosure timeline, the dilemma being faced is the same.

Although the dilemma might be the same to you, it's not at all the same when the lawsuit lacks merit and is easily defended.

Whenever a person is sued, and it will likely happen to most of us, it's imperative the defendant answer the complaint and mount a defense. Heritage Pacific is counting on most defendants either not answering (allowing Heritage to get a default judgment), or settling out of both fear and ignorance.

Thanks.

[Evan Bedard]

By the Bay- I'm very sorry your last post was accidentally deleted. But here is what I posted in response to your question before it disappeared..

That would be good news if they changed the statue of limitations in WA from 6 years down to 3. I'm curious to know when this law may have changed because last I heard it was still a 6 year limitation for the lender to pursue a judgement on a written contract.

[pbhome]

I am from WA state. First loan is with WF, stopped payment 3 months ago and filed Loan mod, loan amount is 550K. 2nd just stopped payment and is with BECU, $60K balance. Reading this thread it seems bit scary. Not sure what will happen to my loan mod request with WF. With both 1st and 2nd together, I am little bit underwater with latest Zillow (by about 10k valued less than total loan amount), whereas I was underwater by 30k when I initially defaulted and begun loan mod process.

Anyone having 2nd with BECU and similar situation as mine or was in before? It would be very helpful to know what strategy works here with BECU. My last payment is overdue by 22 days with BECU, but already started getting calls from them since Aug 1st... it is quicker than I thought I would get calls (so far it was automated calls). I guess whatever I read in this thread is very obviously happening around here.

I have already lost $100K from my downpayment, don't have capacity to loose any more neither any savings. Have $150K student loan to pay off...Appreciate any recommendations.

When I am not so far underwater,

1) Would BECU lean towards settling or suing ?
2) Loan mod with BECU is a good option to explore ?
3) What is the timeframe it takes with BECU if anyone recently has come across with this bank in similar situation ?

Thanks in advance for your reply.

[TomEason]

pbhome

Thanks for your post.

FYI, since your BECU 2nd is underwater they won't FC. I recommend you seek to eventually settle that loan. And you'll have plenty of time to do so because it's way underwater.

I recommend you follow the settlement guide at post #1 of this thread. Strategy for Settling Your 2nd

1) Since BECU is underwater they can only sue once your 1st FCs and BECU becomes a recourse SOJL.
2) IMO, exploring a loan mod with BECU is definitely a bad idea. Settlements are always a better deal. Bear in mind, the generally accepted rule is to get one's 1st permanently handled before addressing the 2nd.

[pbhome]

Hi Tom

Thanks a lot for the feedback. Just to make sure you got it right about my underwater situation, it is not really so much underwater as of now.

Here are some details on this:

Purchase price: 700,000
1st loan, WF, purchase loan: 550,000 (Current balance),
2nd loan, BECU, refi loan: 60,000 (Current balance)
Current value of property as per Zillow: 599K

So it is underwater by 11K at this time... Do you consider this is way underwater? All your recommendations still apply given this difference btw Loan and Prop. value.

Also a related questions, Does defaulting on my 2nd would anyway affect my first loan modification for example from Trial Payment to permanent change ?

Thanks in advance.