Second mortgage foreclosure scenario

[Sean S.]

Say a second mortgage lender forecloses on a home. They're owed $100K and the lender on the first is also owed $100K. The 2 lenders work together and set the minimum bid at the auction to $200K. The lender on the second hasn't bought out the first so if nobody bids, they take ownership of the home subject to the first. If a third party purchases the home at auction for the minimum bid at $200K, both liens are paid and the title is clean. 

Is this something that happens? 

[John Slater]

Hi, No. The max the lender can open bidding is what is owed to that lender. So if the second is foreclosing for $100k, and it sells at $100k, the first is still in place.