Foreclosure Sales On Both 1st & 2nd DTs A Week Apart. Now What??

Question

TRUE STORY in progress! You got foreclosing lender A with a $30k 2nd Deed of Trust (mortgage) on a property with the sale scheduled June 15. You got foreclosing lender X with an unpaid $55k 1st Deed of Trust on the same property with the sale scheduled June 25. So what can now happen after the the lender A sale on June 15??

Lender A can get a Trustee's Deed to the property (an REO) if there are no other bidders. Or a higher bidder can get a Trustee's Deed to the property. In both cases, the 2nd DT lien is wiped out and they have a deed to the property. However, it is still subject to the 1st Deed of Trust that still exists!

Now, the June 25 foreclosure sale is held. The winning bidder from the June 15 sale with the Trustee's Deed can bid at this sale but why would they? Just to prevent anyone else from wiping out the 1st lien and getting another Trustee's Deed? It seems like that is their only choice. However, if there is a new, different party that is the high bidder (such as myself), I assume they will get a Trustee's Deed as a result. Now you got two parties with each having a Trustee's Deed. Both Deeds of Trust liens are now wiped out but WHO HAS TITLE? It seems somewhere along the line someone is on thin ice.

It appears to me that the earlier June 15 sale should be cancelled by lender A since I can't see how they can benefit from going forward with it. I am interested in bidding but don't know how to proceed. I will definitely stay away from the June 15 sale since it doesn't wipe out the 1st lien. But then can I safely bid at the June 25 sale and get good title? Your thoughts please. Thanks...

Richard Dunlop · Answer

Is the property worth more than the 1st position?

The buyer of the 2nd can most likely redeem the property before 1st sale occurs.

Wayne Brooks · Answer

Yep, as Ron S. said, whoever buys it at A's 2nd mtg auction gets title, then gets foreclosed out at B's 1st mtg auction 10 days later. I've seen it with an HOA auction on Monday, and the "lucky" winning bidder got the property taken away on Thursday at the 1st mtg auction. If you look, you may see the 2nd mtg holder filed foreclosure after the 1st mtg holder, in an attempt to beat the 1st mtg holder to auction, to create just this scenario, hoping for a sucker bidder to bail them out. I would if I were them.

LG Summers · Answer

Thanks Richard. This property is no longer of interest since I just bought a foreclosure at the opening bid of 44 on an original mortgage of 90k. But the basement has severe water damage and was listed twice in the past at 80k with no takers. Didn't see the inside while listed since it was not in foreclosure then, but unkown inside condition comes with the territory. A lot of work ahead.....

Richard Dunlop · Answer

You could read the recorded deed of trust to see the terms.

But 2004 does not guarantee much is paid off the note. Unpaid taxes cost of foreclosure could conceivably make the payoff higher than the original note.

ie Was it a 30 year note or 15 year?

Was it a 40 year note or Interest only for the first five years or even negative Amortization. (All three avail in 2004)

Did the lender wait three years before they caught up on foreclosing this property? (As some markets they were way behind)

LG Summers · Answer

The 1st is 2004 which is pretty old but I've seen many opening bid amounts for foreclosure sales on loans that old that are very close (surprisingly) to the original loan amounts.

Richard Dunlop · Answer

Careful here! You probably gain nothing by acquiring the 2nd UNLESS you redeem the 1st. There are strategies playing with overages but NOT here because it is not worth the 1st (unless it is paid substantially down, What is the date on the first?)

LG Summers · Answer

I agree Richard. Who knows at this point what the opening bid with be on the 2nd. Just considering the 1st, as you probably know it's impossible to call the 1st up and get a pay-off amount. The orig loan was for 55k and I would not consider investing that much in it. The opening bid on it, however, could be much less.

LG Summers · Answer

Thanks Ron and Wayne... You answered by question with a little pizaz.

Ron S. · Answer

I employ this tactic often. I am usually the junior lien holder when I initiate my foreclosure. I am hoping some yahoo thinks they are getting a $500,000 house for the $85,000 balance on my junior lien. It's happenned a few times in the last five years. Needless to say, when the winning bidder calls me asking for keys, I tell them, "You can come by and pick them up anytime. Do you want the number for the senior lien holder that's foreclosing next month?" After the crickets stop chirping they freak out. Not pretty but, it happens. That said, I don't foreclose in junior position unless the numbers tell me i'll get recovery above and beyond the senior lien amount.

Ron S. · Answer

If someone bids over "A", A gets paid that amount so, no, they dont' get wiped out. If no one bids, "A" gets title as REO, then loses it a week later if they don't pay "B" off.

Once "B" goes to sale, "A"'s REO title is null and void. They got wiped out.

Foreclosure Sales On Both 1st & 2nd DTs A Week Apart. Now What??

Foreclosure Sales On Both 1st & 2nd DTs A Week Apart. Now What??

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