rea Second mortgage, overappraisal cause problems
By Samuel J. Tamkin
Tribune Media Services
Q:I read a story in your column recently that was exactly my story a couple of years back.
The story was about a guy who had his condo overappraised for a second mortgage and when he lost his job found out his property wasn't worth as much as the appraisal. This happened to me, and when I questioned the bank on the appraisal, the bank said that the location of my home on the waterfront gave it greater value.
I accepted the second loan and I, too, lost my job. My home was foreclosed on but I, unlike your reader, was able to list it for sale and sold it before the foreclosure. I was able to pay off the first lender but there was no money left for the second lender.
Here's my question: Am I responsible for the second loan that was never paid off? I would never have taken out the second loan if I had known that the real value of the home was less than the appraisal.
I have been worried for years that the second lender might come after me, sue me and that nine sheriffs will be knocking on my door looking to collect on the debt. The second loan has been sold at least three times, and I keep getting bills for the entire amount. My second question is how long do they have before they have to file suit against me?
A:Whether you take out a first or second loan on a home, you sign a note that says you will repay the loan. The home is used as collateral in case you don't pay.
You were able to sell your home and pay off your first lender. Unfortunately, you didn't get a pass on paying off the second loan simply because there was no money left after paying the primary lender. That means you are still on the hook for the second loan.
If you are able to prove that the lender was a predatory lender and that he deceived you into taking the loan, you can file a complaint against the lender with the office that regulates banks, mortgage brokers and lenders in your state. You may even be able to file a complaint with your attorney general's office.
If you are successful in proving that the lender was a predatory lender, that their acts were predatory and you were harmed as a result of what they did to you, you may be able to get out of paying off the second mortgage.
What is unique about your situation is that you were able to pay off the first lender and close on the sale of your home without paying off the second lender.
Did the second lender consent to the sale of the home? Because the first lender's loan amount was for the same amount as the sales price for the home, the second lender knew they could not get money from you at the time of the sale and may have released their lien on the property.
In fact, that's probably how you were able to complete the closing: The second lender agreed to release their lien against your property.
But, the second lender clearly did not release you from the debt and your obligation to repay it. The promissory note you signed is still out there. Depending on the state where you live, the lender may have four to 15 years to file suit against you.
In most states the clock starts ticking from the date the debt would have come due or from the date the lender accelerated the due date and demanded repayment. It's not clear what has happened in your case, but the lender probably still has quite a bit of time to sue you before the window closes.
Your best bet is to talk to your state representative or some of the people who work in the department that regulates financial institutions to determine if you were actually a victim of a predatory lender. If you were, you may want to proceed with any guidelines established by your state to file a complaint against the lender or find an attorney who has experience fighting predatory lending practices and determine whether you have a case against the second lender.
Samuel J. Tamkin is a Chicago-based real estate attorney.