Bank attempting foreclosure in third position

[justasking]

Hello All,

I have been posting in the Small Biz section previous to this because defaul loans are business loans, but because of a new twist with the bank, I'd like to ask a question here.

Attorney recently filed a notice of foreclosure notice for our property which was used as collateral for a SBA-guaranteed loan. Sheriff's sale is scheduled right now for August 11th.

My challenge is that this lawyer is kinda acting like a loose cannon that the bank is just letting run wild. Despite numerous letters and phone messages from our lawyer, this lawyer continues to move forward with this incorrect info:

1) Lawyer thinks this loan is simply a mortgage note, not a SBA-guaranteed loan collateralized by the mortgage.

2) Lawyer thinks he is in second position behind roughly $190k CitiMortgage in first, and the *very same bank* for about $80k in second.

On Wed morning, I confirmed with the recording department of said bank that in fact, HELOC is in second, SBA-guaranteed loan in third.

I also have the SBA talking with the bank about redirected loan payments from said loan they are attempting to foreclose on. Chapter 11 looks like a good possibility to take care of business, if we can get this SBA-guaranteed loan satisfied.

Here are my questions:
1) If we attempt to file a Temporary Restraining Order on lawyer, can we stop or slow down this lawyer's action? Can the judge force the bank to accept loan payment made back in February and adjust the amount due on the note?

2) Why would he want to foreclose on third when he has second? Would he really want to buy out $270k for a $6,200 loan (with foreclosure fees) just to make our lives hell?

3) Hubby says we need to seriously consider paying off this note or our credit will be trash. I say it is already heading there and Chapter 11 won't help ... what would be so bad about letting bank foreclose on third position and have it sit out there until we are in a position to pay it off?

Thoughts and comments very much appreciated...

[SMinGA]

What is the home worth compared to the total owed?

My understanding is that to foreclose, the 3rd position would need to pay off the 1st and 2nd in full.

[justasking]

We are located in rural MN, so if I wanted to be conservative and fair, I'd say the house is worth about exactly what it is owed ... roughly $270k. Or possibly less ... but I would say with the value drop in houses lately, certainly not more.

[daytona]

1) Hard to say, TRO, if granted, usually is resolved within days/couple of weeks.

2) If your 2nd is with the same lender as 3rd and the first is 190k, then the 3rd maybe has an incentive to foreclose as all they have to do is pay off the 1st, since they also hold the second...Maybe they figure they can net ~260k, so they only take a 26k loss...for example...or they think they can net more..? Are you also late on 2nd? If you are current on 2nd, then them choosing to foreclose on ~6200 seems stupid....could have something to do with SBA though.... Is MN a judicial foreclosure state? If so their costs will be higher..

3) You are correct, can't worry about credit...it's going to drop a lot from the lates and/or Ch11 regardless....

If you want to stay perhaps you can try to settle with third, otherwise a BK will stop them for a bit...but since its a secured loan, they can get relief from stay if you can't work something out..

[justasking]

Second is not late in any way.

SBA was not aware until Wednesday this week that loan was in default. Apparently, bank has moved forward on foreclosure without notifying them or asking for guaranty. Bank has also also taken loan payments made to SBA loan and applied to their own non-SBA loan, which is why we stopped making payments on loan. Current for 6+ years up to the last four months when bank started playing games.

We currently have request into SBA for assistance and possibility of SBA taking over servicing of loan -- just not sure how much they will help us.

And of course, I've still got the Sheriff's Sale scheduled for August 11th to worry about.

[daytona]

Well you have an interesting case then...you are probably going to have to get an attorney to defend...to me, there are all sorts of issues with the bank arbitraily taking payments from your SBA and applying them to something else. Seems stupid of them to be playing games with a govt sponsered program....and even dumber to go through the process and expense of foreclosure over 6200...they must think you home is worth quite a bit more or something.

[justasking]

Yep, we do have one and it has been interesting, to say the least.

The most recent action, the foreclosure notice and sheriff's sale -- are coming from the bank's attorney who a) thinks he is just foreclosing on a note and not an SBA-guaranteed loan and b) thinks he is in second place, not third.

Our lawyer sent him a whole bunch of documentation on Tuesday, but no word yet. The SBA is hopefully meeting internally today to discuss how to deal with our case and may provide some help. This bank has been a nightmare to deal with ... they are just a loose cannon with no regard for a reasonable solution.

[daytona]

and the banks wonder why they are loosing so much money.... downright INCOPETENCE....