In California, a borrower obtains a home equity line of credit (HELOC) secured by a second deed of trust on their residence. The borrower later defaults on both the first and second deeds of trust. The first deed of trust holder forecloses through a trustee's sale. What happens to the second deed of trust?
Correct Answer
B) The second deed of trust is wiped out by the trustee's sale, but the lender retains the right to pursue a personal judgment
When a senior lien holder forecloses, junior liens (including the second deed of trust) are wiped out. However, the junior lien holder's debt is not extinguished — they may still pursue a personal judgment against the borrower for the unpaid debt, since the HELOC is not purchase money.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
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