Benny L. Kass Mailbag

Mortgage lenders know what you can afford Q:I want to buy a second house. How much money do I need? Any pointers would be very much appreciated. -- Julie

Answer: You raise an interesting question, not only for buying a second home but for any potential homebuyer.

My first suggestion is to talk with a couple of mortgage lenders. Explain your financial situation, and let them give you an idea of how much house you can afford. Clearly, you don't want to waste your time (and that of any real estate agents involved in the home search) by looking at homes in the $750,000 range if you can afford to buy only in the $500,000 area.

Once you have a general idea of how much you can pay, then you should start looking for houses. Interest rates and home prices are quite low today, so this is a good time to start shopping around.

Q:A few years ago, I listed my house with a real estate agent. It took a little over a year before he found a buyer. The buyer could not come up with the list price, so the agent asked if I would carry the balance for the potential buyer. I agreed. The agent initiated a lien on the property, and we signed the papers and sold the house to the buyer.

After about 22 months of paying on the second mortgage, payment stopped. I tried to contact the buyer but found he had moved. Later, I found out that the bank was foreclosing on the property and the lien that I had wasn't worth anything because the bank had more invested than me. The house was eventually sold to another buyer, and I was out of the money that I put up for the second mortgage. Is there any way that I can recoup my money? -- Floyd

Answer: You took back a second trust (called a mortgage in some parts of the country). You indicated that your agent "initiated" the lien; did you use an attorney for this? You should have.

Your attorney would have explained the risks of a second mortgage. As its name implies, it is in second-place position. If the first trust lender forecloses on the property, it literally wipes out anyone in second place, including you.

However, there may be some remedy. Normally, when anyone makes a mortgage loan (whether a first or a second), the borrower signs two documents: a promissory note -- the IOU -- and the deed of trust (or mortgage). Although your mortgage is no longer valid (there is no house to foreclose upon), the promissory note remains valid.

You have the right to file suit against your borrower for the balance owed on that promissory note. Your borrower may not have any money now, but if you can get a judgment against him, that judgment will remain for a number of years (state law will determine this) and you may ultimately be able to collect.

However, if your borrower filed for bankruptcy, you may be out of luck. But you are a creditor of that borrower and should have been notified of the pending bankruptcy filing. In fact, it is my understanding that in most states, when the first mortgage lender foreclosed, you should have been notified of the pending sale.

Talk with an attorney about your specific remedies. If your mortgage was not recorded on land records, you may have a case against your agent and/or the title company.

Benny L. Kass is a practicing attorney in Washington. Questions for this column can be submitted to .