negatively altered due to a 2 nd mortgage, a 20% LTV on
the 1 st should still satisfy a 1.35 DSCR in most
circumstances. After the 2 nd obtains the property [or a
new owner should the property end up in a higher
bidder’s hands], most new borrower’s would hopefully be
qualified to service a low LTV. Of course, each
circumstance is independent, and most banks will want
to preserve their right to enforce the “no junior lien”
clause.
Usually, only if the bank pulls a preliminary title report,
are they aware of the junior lien. They are not usually
automatically notified. The main question is whether the
bank will automatically declare a default if a 2 nd is
placed on the property behind their 1 st ? When banks
find out that a 2 nd exists, they may either ignore it or
send a letter requesting/demanding that the junior lien
be removed as per the terms of the bank’s loan
documents. Whether a bank decides to pursue its
demand that the junior lien be removed is up to the
bank; however, they want to preserve their rights by
notifying the borrower that they have requested
removal, and thus, have written evidence that they
contacted the borrower, so the borrower cannot claim
ignorance or nonnotification of the break in the
covenant of the bank terms. This notification protects
the bank should the bank choose to start its own
foreclosure due to the default.
Most borrowers who have asked permission for a junior
lien to be placed behind the bank’s 1 st mortgage have
usually been told, “No”. That is why most borrowers
figure it is better to ask for forgiveness than permission
in hopes that the bank will not find out about the junior
lien until the borrower either sells or refinances the
property in question.
39
Banks Do
In previous scenarios above wherein the DSCR was