Credit Union Home Equity Mortgages and deeds-of-trust of any nature are generally junior in position to a first mortgage/lien holder. As such, the credit union can and should protect its Home Equity portfolio as securely as possible from collateral damage if a first mortgage proceeds into foreclosure.

Question:

Will the credit union receive a notice if the first mortgage proceeds into foreclosure?

Answer:

Maybe, but some states laws, such as that in Michigan, do not require the first mortgage holder to provide any type of notice to the junior mortgage holder and, the foreclosure could proceed to sheriffs sale without the credit union becoming aware that their junior mortgage interest was extinguished at the sheriffs sale.

Many attorneys processing foreclosures provide a courtesy notice to the junior lien holder, however, some of those notices arrive at the credit union only days prior to the sheriffs sale date, thereby placing the credit union on somewhat short notice as to determine if immediate action is required for the sheriffs sale date. Other issues entail the redemption period for the credit union to exercise its statutory right to reinstate its mortgage by paying the entire amount required to redeem.

Question:

How can we find out if a members property is in foreclosure?

Answer:

A regular internal credit union process of monitoring Home Equity borrowers general credit union account activity is an essential factor. Erratic payments on loans or credit cards issued by the credit union, plus verification from a credit reporting bureau or other source to confirm first mortgage payments will enhance the credit unions ability to anticipate potential first mortgage foreclosure issues.

Monitoring these accounts for possible first mortgage foreclosure activity is cumbersome for the credit union.

A foreclosure by publication could proceed to sheriffs sale within a period of as little as four to five weeks in some jurisdictions and, as long as the member is timely paying the credit union on the credit union Home Equity Loan, there are no flags that alert the credit union of a first mortgage default and/or foreclosure.

The junior lien holder would literally need to either contact the first mortgage company/lender, or otherwise verify the first mortgage payments by other means, such as a new credit report obtained every few weeks, to fully monitor the possibility of a first mortgage proceeding into foreclosure.

The credit union should not proceed with the assumption that the first mortgage payments are being timely made, even though the credit union Home Equity loan and all other loans at the credit union are current.

For myriad reasons, seldom with malice, some members continue to pay their credit union Home Equity mortgage payments even though their first mortgage is in foreclosure.

The credit union could unknowingly experience a superior mortgage foreclosure proceeding to sheriffs sale and extinguishing the credit unions junior Home Equity or Second Mortgage, all without any knowledge of the credit union.

If the first mortgage proceeds into foreclosure, the credit union has multiple options available to protect its interests in the property.

Author: Charles R. Harroun, Attorney at Law