Q. I read a letter sent to in our local paper that was exactly my story a couple of years back. The story was about a guy who had his condo over-appraised for a second mortgage and when he lost his job found out his property wasn’t worth as much as the appraisal. This happened to me and when I questioned the bank on the appraisal, the bank said that the location of my home on the waterfront gave it greater value.

I accepted the second loan and I too lost my job and my home was foreclosed on but I, unlike your reader, was able to list it for sale and sold it before the foreclosure. I was able to pay off the first lender but there was no money left for the second lender. Am I responsible for the second loan that was never paid? I would have never taken out the second loan if I had known that the real value of the home was less than the appraisal. I have been worried for years that the second lender might come after me, sue me and that nine sheriffs will be knocking on my door looking to collect on the debt. The second loan has been sold at least three times and I keep getting bills for the entire amount. My second question is how long do they have before the have to file suit against me?

A. Whether you take out a first or second loan on a home, you are responsible to repay the loan. The home is used as collateral in case you don’t pay. Unfortunately, you are still on the hook for the second loan. If you are able to prove that the lender was a predatory lender and deceived you into taking the loan, you can file a complaint against the lender with the office that regulates banks and mortgage brokers and lenders, perhaps even the attorney general in the state in which you are located. If you are successful in proving that the lender was a predatory lender, that their acts were predatory and you were harmed as a result of what they did to you, you may be able to get out of paying them.

What was unique in your letter was that you were able to pay off the first lender and close on the sale of your home without paying off the second lender. Did the second lender consent to the sale of the home? Because the first lender’s loan amount was for the same amount as the sales price for the home, the second lender knew they could not get money from you at the time of the sale and may have released their lien on the property. By not requiring any payment at your closing and probably agreeing to release their lien, the second lender must have allowed you to close on your sale.

However, the second lender did not release you from the debt and your obligation to repay it. The promissory note you signed is still out there. Depending on the state in which you are located the lender may have anywhere from four to fifteen years to file suit against you. In most states the time starts from the date the debt would have come due or from the date the lender accelerated the due date and demanded repayment. It’s not clear what has happened in your case but the lender probably still has quite a bit of time before he runs out of time to sue you.

Your best bet is to talk to your state representative or some of the people that work in the department that regulates financial institutions to determine if you were actually a victim of a predatory lender. If you were, you may want to proceed with any guidelines established by your state to file a complaint against the lender or find an attorney that has experience fighting predatory lending practices and determine whether you have a case against the second lender.

Published: Sep 24, 2004