Foreclosing 2nd lien

I made a loan to a local investor secured by a deed of trust. That loan became the 2nd lien on the property. Now I have to foreclose on it. What happens? After the foreclosure takes place, I am immediately responsible for the 1st lien, right? I am in Texas.
This situation may become a “stupid tax” if I cannot sell it for enough to cover the 1st lien and get my original $ back.

Thanks for your help.

You don’t become “responsible” for the first but it is superior to your position and you’ll have to make payments or pay it off at some point to protect your interest.

Here are some numbers on the situation: 1st lien is $60K. 2nd is $10K (the money I loaned out). Consider the following horrible scenario: What if the property is not worth enough to cover these? All I want is to get my money back - I have no desire to own the property. In this worst-case scenario, what happens? e.g. If I can sell it for only 50K, would I need to bring 10K to the closing table to get rid of it?

don’t throw good money after bad. right now your exposure is the $10k you loaned and secured by the second mortgage. if the property is not realistically worth more than the first mortgage then you can walk away, or negotiate with your borrower for a reduced payment or you can sue the borrower for any deficiency (depending upon your note terms). Just because you loaned money on a property does not make you responsible for the property and superior liens unless necessary to protect your inferior lien.

I have a question for you.

Is the first current?

I don’t know for sure if the first is current, but I think it is extremely unlikely.

You never know, being an investor they may realize if they bring the first current but do not pay you it is unlikely you will want to take over property.

If this is the case, my advice would be to just wait for the eventual sale or refi of property. If the first is deliquent then I would try and short the first for the seller, then take over the property.


Thanks everyone for your input.
I chatted with the first lienholder just now. It turns out that they have been paid off already! So this just went from a potential disaster to a blessing. Even if the property only sells for, say 40K, I am still quite a bit ahead.

well that’s a bit of good news, congratulations.

do you have a subordinate note because if they refi your back to where you started

Perhaps help the owner refi to pay you off.