Is a HELOC automatically secondary?


#1

Hi. I bought a home today at a Trustee Auction and need to take care of a 2nd HELOC now. I?ll try to explain the situation clearly. ?

The former owners mortgaged the home in early 2002. ?

They pulled a WAMU HELOC for 70k in late 2002. ?

They got a new mortgage (from Wachovia) on 02/2003, and paid off the first mortgage with that money. ?

They modified the HELOC to 200k in 2006. ?

They foreclosed on the Wachovia/WellsFargo mortgage today. (this is the one I paid off). ?

The title company told me that since the HELOC was pulled before the last mortgage, it is senior to the main mortgage.?

However, Chase insists that their HELOC is secondary, and therefore subordinate to the WF mortgage.?

I can not find any written record thought that would subordinate the HELOC to the new mortgage. ?

Should I just wait for the deed and then file it with Chase and request a reconveyance certificate? ?

I have a feeling they will come back and try to say that the HELOC was pulled a few months before the WF mortgage and therefore not secondary. ?

Is it automatically secondary simply because it is a HELOC? ?

I would appreciate any feedback/comments! ?Thank you!


#2

A HELOC is NOT automatically secondary. Seniority is established by recording date. If the HELOC was recorded before (earlier by date/number) the loan that went to trustee sale, then that HELOC is “senior” and still has standing. So the title company was correct in their explanation. The only thing that could change that seniority would be if the HELOC agreed to take a junior position via a subordination agreement (SA). Any such SA would likely have been made and recorded on or about the time the larger loan was made.?

Most institutional lenders are reluctant to make a large?2nd or 3rd position loan as they risk being wiped out in foreclosure by the smaller senior loan. There would have to be substantial equity and other favorable credit circumstances for such a loan to be made, especially in today’s environment. BUT, lending “mistakes” have been made and _ un _reconveyed HELOCs are the most common “miss.” It is _unusual_ but not rare to find an old non-reconveyed HELOC that stands in first position. In most cases, these _“oops we missed that” _mistakes (title check misses) are caught by the junior position lender(s) before a foreclosure … but, if not, correcting that mistake might prove costly for the lender or title company that vetted loan position.?

I have seen a few old non-reconveyed HELOCs that were foreclosing wherein the house was sold, passed through title and transferred to new owners. Must have been a shock for the new homeowners to get NOD/NTS posted on their front-door (based on the past owner’s non-payment).

?


#3

The HELOC is dated a few months before the mortgage, but the current mortgage was used to pay off the original mortgage and the HELOC was definitely secondary to that. Chase (they hold the HELOC) is saying they are still in 2nd place. Do you think they will reconvey once I show them my deed or will they change their position and now claim they hold the senior loan?


#4

? ? ?This is not an unusual situation. ?More than a few of these HELOC loans were not reconveyed. ? What often happened was the HELOC was left as an open loan. ?It may have been paid down to zero, in some cases, by the new Bank loan thinking they were now first - but the HELOC lender still had their account open and a “sharp borrower” would definitely run that up. ??


#5

Zack … “loan position” is one of the most critical data points to get strait when it comes to trustee sales. It’s best to **not **assume a loan is in 1st, 2nd or 3rd position until you’ve verified that it is still outstanding (has NOT yet been fully reconvened) and you’ve confirmed the position by recording date and document number – sometimes 2 loans on the same APN are recorded at the same date and time … and then you’d look at the document number … earlier number is senior. And finally, check for any subordination agreements, as that can occasionally change the loan position.?

You say above “Chase is saying they are still in 2nd position.” … you also said “The title company told me that since the HELOC (WAMU/Chase) was pulled before the last mortgage, it is senior to the main mortgage.” So right there I see a contradiction. It sounds to me like the Chase HELOC was never in “2nd position” but rather was senior to the loan you acquired at the trustee sale, and hence it is now your responsibility. But I am only going by what you wrote. No one can sort this out unless you very clearly lay out the position of the open loans by recording date. Right now (post trustee sale) it sounds like only one (1) open loan stands? Yes? And it is the HELOC from Chase? If the Chase HELOC was recorded after the loan you bought, it is junior and is wiped out to you. If it was recorded before the loan you acquired at trustee sale, then it is senior and remains your responsibility.?


#6

Thanks Danny. You saw the same contradiction I did. What I don’t understand, and forgot to include in the first question is: The WF deed that went to auction labeled “FIRST DEED OF TRUST”. The HELOC simply says, “DEED OF TRUST”. How could the WF deed say that if it is a junior deed?


#7

This is my situation now, was just served foreclosure papers from Chase on my house that I have owned for almost 6 years, because the seller had a HELOC with them and has since defaulted. The HELOC was recorded before my mortgage with Bank of America and Chase is claiming a senior position. Do I have a claim against the title company because this was “missed” at my closing and later again when I refinanced with the same lender? Any advice would be very appreciated as I am very shocked this has happened and now have to incur legal fees to save my home.-Sandy