Ask the County Law Librarian – Promissory Notes, Liens, and Foreclosure
Q. I have a promissory note in the amount of $70,000.00 secured with a deed of trust to a house in Tahoe City. The note is now 8 months overdue. I would like to place a lien against another home he owns in Tahoe City as well . . . how do I go about doing that? Also, what is the best way to force payment on this Note? Thank you!
A. You seem to have two questions: one, how do you go about placing a lien against real property when you do not have a security interest in that property; and two, how do you foreclose against real property in which you do have a security interest? Let’s take them in turn.
The answer to your first question is that you cannot. Liens are governed generally by California Civil Code (Civ. Code) §§ 2872 – 2914. A lien is a claim against specific property, by which it is made security for the performance of an act (usually payment). Civ. Code §2872. A lien can be created by a contract between the two parties (e.g., your promissory note and deed of trust) or by operation of law (e.g., a judgment lien). Civ. Code § 2881. California law does not allow a lien to be placed upon real property without a corresponding obligation specific to that piece of real property. You would first have to sue the owner of the real property and obtain a judgment before you could place a judgment lien on the property. See my previous article on “Real Estate Liens,” at http://sacramentopress.com/headline/72129/Ask_the_Law_Librarian_Real_Estate_Liens for more information on this process.
A judgment lien would entitle you to the amount of your judgment plus accrued interest from the escrow, if and when the property was sold or refinanced, and after any Homestead Claims (which can range from $75,000 to $175,000, see the “Homesteads” Step-by-Step Guide on our website at http://www.saclaw.org/pages/homesteads.aspx for more information), and any other creditors with a higher priority (like any promissory note and deed of trust on this house) were paid.
In some situations, it may also be possible to "foreclose" on the judgment lien, and force the sale of the property. This is only an option is there is enough equity in the property to pay off any Homestead Claims, all other existing liens, and the costs of the foreclosure lawsuit itself, which can be significant. For more information, see the “Enforcement of Judgments” Legal Research Guide on our website at http://www.saclaw.org/pages/lawsuits-judgments-topic.aspx.
The answer to your second question is to foreclose upon the property. Your deed of trust most likely authorizes you (the lender) to foreclose if the loan is in default, without having to go to court first. See our Step-by-Step Guide on Deeds of Trust, available on our website at http://www.saclaw.org/pages/deed-of-trust.aspx, for more information.
Although this non-judicial route is cheaper and faster than judicial foreclosure, non-judicial foreclosures must conform to the very detailed regulatory scheme found in the California Civil Code §§ 2920-2924, which has been amended of late to add more protection for borrowers, due to the sub-prime mortgage crisis. See our Legal Research Guide on Foreclosures, available on our website at http://www.saclaw.org/pages/foreclosure.aspx, for more information.
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