[WSBAPT] Second Deed of Trust

[Mark K. Funke]

Jeffrey: 

Generally the language of the recorded 1st DoT should tell you whether the 2nd is actually prohibited. If yes - then,

It’s one of those things where no one cares until someone cares - which always seems to be a nitpick lawyer who is brought in for some other issue after the fact. 

Certainly if the 1st has a monetary default, then the first DoT holder sometimes also reference the existence of the 2nd DoT as an additional default. 

I have run into a situation where we were seeking to have a buyer assume the 1st DoT as part of the purchase and the institutional lender (1st DoT) made a big deal out of the default that existed because of an unapproved 2nd - even though the 2nd was going to be paid off as part of the sale!

I’ve never seen it be an issue all on its own - but rather it seems to be thrown into the kitchen-sink of other problems in some other underlying dispute. It probably rarely becomes a stand-alone issue because there is no easy way for the 1st position lender to know whether a 2nd was recorded unless the 1st has a reason to again pull title. It also doesn’t have a huge impact on the rights of the 1st, so there isn’t that much reason to make a fuss over it on its own. 

Logically, it makes sense that a 1st DoT holder may want to restrict the existence of 2nd DoTs - the less equity an owner has in their property the more likely they are to default because they have less left to lose. That is, if you’ve taken all the cash out of the property in the form of debt, then why not “let it go”. So properties with more debt end up in default more often than those with less debt -regardless of the fact that the 1st DoT holder is in a better equity position than the 2nd. 

Practically speaking clients generally want to do what they want to do. If the 1st DoT prohibits a 2nd DoT, explain the situation, explain the risks and then assuming the clients wants to proceed write a CYA letter before creating the 2nd DoT for the client. 

Thanks,

- Mark

__
Mark K. Funke, Attorney
4111 East Madison St. #272, Seattle, WA 98112
By appointment in Portland & Seattle
P.206-632-1535
mark at funkelaw.com
Licensed in Oregon & Washington










On Mar 5, 2016, at 4:32 PM, Tom Stuen <tomstuen at comcast.net> wrote:

> Jeffery:  It has not been a problem in my cases.  I have not seen a senior deed of trust which provided that the filing of a second was a basis for acceleration.  But yours could say that.  And maybe my seniors were not paying attention.
> Tom Stuen
>  
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of jeffrey winter
> Sent: Saturday, March 05, 2016 2:46 PM
> To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> Subject: [WSBAPT] Second Deed of Trust
>  
> Listmates (at least those of you working on a Saturday):
>  
> I am preparing a Second Deed of Trust for a client.  I understand that it will be junior to the underlying financing that was secured by the primary Deed of Trust, but am still nervous about triggering anything adverse when I record the Second.
>  
> Has anyone ever experienced a senior secured party threatening acceleration based upon the filing of a junior instrument?
>  
> Thanks in advance for your comments...
>  
>  
> Jeffrey D. Winter
> 
> Law Office of Jeffrey D. Winter, P.S.
> 604 North Main Street
> Ellensburg, WA 98926
> (509) 925-9600 tel.
> (509) 925-9606 fax
>  
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