Question: This question is about a line of credit in first position and what happens after a foreclosure by the second lender(in California). The loans are in an unusual order. I provided a second loan for an owner of a rental house (meaning I am a lender, somewhat like a bank). The owner/borrower already had a Wells Fargo line of credit secured by that rental house. Since the homeowner (now the previous owner) failed to make payments to me I caused the foreclosure and am the present owner. I want to ask “What happens with regard to the line of credit?”. The LOC is for $75,000 which is slightly more than the current value of the house. For that reason I think Wells Fargo will not want to foreclose on me. Will Wells Fargo in fact pursue me at all rather than the original borrower? If so, will they want instant repayment? If I can’t repay immediately how will Wells Fargo determine the rate of interest and repayment schedule?
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Answer: – No, they won’t pursue you if I am reading this correctly. Same thing happens as with any 1st and 2nd lien holder. If the first lien holder forecloses and the 2nd lien holder doesn’t protect their position, they are wiped out. Any surplus from the auction would go to them. The home then goes back to the 1st lien holder. The 2nd who was wiped out has options. They can either write off the amount lost in the form of a 1099, or the can pursue the homeowner to try and collect the amount lost. So no, they won’t come after you, they will come after the person who originated the mortgage with them.