Hello Fellow BPer's,
I am looking at a property that is going to judicial auction in a few weeks or so and have been doing my homework on it, however I have stumbled upon something that I have never seen before. A few years back there was a trustee sale where the second mortgage on the property foreclosed on the owners, it went to the auction, no one bid on it and now the 2nd has title to the property. However, now the first loan is foreclosing on the original homeowners. The court documents state "Bank vs. Homeowner", yet how can the bank be foreclosing on the original homeowners if the 2nd bank received a Trustee Deed for the property a few years ago. According to the assessor's office, the 2nd bank has ownership of the property. After the judicial auction of this property, does the 2nd simply disappear and now the winning bidder is the new owner? I would not think that the 2nd (who currently owns the property) would give up their ownership after this auction. If anyone has any insight as to how this might work, it would be greatly appreciated. I am going to see an attorney about this, I just want to see what the biggerpocket genius's have to say first. I know that when the first forecloses the second is cancelled out, but what happens when the 2nd has title to the property and the first is foreclosing on the original homeowners? Thanks for any input! I look forward to hearing what people have to say!!
Good that you're seeing a local attorney. Foreclosure process vary from state to state.
My understanding in a case where a second forecloses, gets no bids at auction, and takes possession of the property is that they take possession subject to the first. The first usually has to be notified during this process and often forecloses, too. Certainly, the first has the right to foreclose after the second takes ownership because that violates the due on sale clause.
However, the original owner is still on the hook for the first mortgage. So they would be named in the first mortgage foreclosure. The new owner, former second lienholder, will have to bid at the new foreclosure if they want to protect their interest.
The new owner should have already dealt with this, usually by paying off the first or at the very least making payments on the first. Sounds like they didn't. Its possible they were unaware of the first. I saw this happen on a REO a friend was looking it. It was on the MLS as a REO. The listing was pulled when the first was discovered. IDK how that was resolved. This may turn out to be an expensive lesson for the second lienholder.
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