A foreclosure on my rental home was recently voluntarily dismissed by the mortgage company. The lender made a mistake at the time of origination and did not pay off an LOC inadvertently (in my opinion) putting them in the second position to the LOC. We have called and their response is "lack of equity." After doing the numbers it appears the property might be close to a net loss to them. Is my reasoning sound? What happens in this stalemate situation? Can they decollaterlize the loan and come after us personally? We can't make the property cash flow with one encumbrance much less two.
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Yes, reasoning is sound.
Yes, they can attempt collections but must first obtain a judgment in order to do so.
They would be a prime candidate for pennies on the dollar settlement but if the deal still makes no sense even with just the LOC then there doesn't appear to be a solution. Maybe they sit there for a long time (quietly)... hard to say. Doesn't sound like they are going to spend good $$$ after bad for collections.
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Possible solution would be a settlement with both lenders for less, therein creating some equity in the property. What are the numbers?
1) LOC in 1st; 2) Mtg in 2nd; 3) Current FMV of property?
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