Updated over 1 year ago on . Most recent reply
2nd lien foreclosure
I see some foreclosures where the bidders must buy subject to the first mortgage. The auction price seems to assume that the proceeds will be applied to repay the first mortgage and the second mortgage. For example, the property is valued at $300,00. The property is being sold subject to $175,000 first mortgage. Second mortgage is $50,000. Property sells for $220,000. How does the buyer ensure that the proceeds are used to pay the first mortgage?
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I believe you mis-understand the process. In the jurisdictions I'm familiar with,
when auction is in 2nd position: There is a lot of nuance regarding foreclosures and each state varies
1. Never trust their valuation of the property. Do your own research.
2. They list only either the opening bid for the property they are auctioning off ($50,000) or they don't list a number at all
3. NONE of the money raised from the auction of a 2nd goes toward the payment of the 1st (that is why they call it "subject to the first")
4. "Being sold subject to the $175,000 first mortgage" means that if you are the winning bidder on the 2nd, you are buying it WITH the responsibility to pay off the 1st or make those payments.
5. If the 1st then goes into foreclosure, you are in deep trouble, you have to pay it off or lose your money on the 2nd AND lose the property.
6. You can't get "clear title" until all leans are cleared, whichever way that happens
SOMETIMES, but not frequently, the 1st and 2nd will combine and both will be included in the auction. That would almost always be from the same lender who has a 1st AND 2nd on the property and they are just fed up with the owner and are taking the opportunity to get out of a bad situation entirely.
Sorry, it's complex enough that it isn't a 15 minute class.