reinstate or foreclose on senior lien after junior auction

6 Replies

For context I'm in North Carolina, but my question is not specific to state foreclosure laws. I have attended a few courthouse foreclosure auctions and have observed the following situation and I don't quite understand it.

A property has just two liens on it, a senior and junior. The public auction for the property is being triggered by the junior lien. At the end of the bidding the winner comes away as the owner of the property with a trustees deed. This is not an auction for the lien, in NC you come away from an auction not as a lien holder but a property owner.

The property is valued at say 250K, the junior lien bidding started at 100K and ended at 190K and to the best of my knowledge and for the sake of this question the outstanding balance on the senior lien is 50K. Both liens are held by the same lender/bank. 

What I don't understand is why would an investor bid at the foreclosure triggered by the junior lien? 

I don't think the lender/bank will be interested in re-instating the senior lien to the winner of the auction from the junior lien. The bank should have no trouble making a lot more money putting the house at auction again. This time around triggered by the senior lien and setting the opening bid at roughly 50K. There will almost certainly be third party bidders that will bid and drive the winning bid up, since there is so much equity in the home.

Once the auction triggered by the senior lien is over the winner walks away as the owner of the property with a trustees deed. The winner of the auction triggered by the junior lien then just went through a foreclosure and lost his deed/ownership of the home. 

Isn't that what the bank would do, foreclose again instead of re-instating?

Thanks

If you buy at a foreclosure by a second mtg holder, you need to plan on simply Paying Off the first.  Your bid amount should reflect this.  One thing you may have misunderstood, if the first mtg holder forecloses on a debt of $50k, including fees, and the property sells for $150k, the first mtg holder only gets $50k, the balance goes to junior lien holders, then to the owner.

I don't think the bank is obligated to accept any payment from the junior auction winner. The note the lender holds that secures the 1st mortgage/lien is signed by the original property owners. Those are the only people the bank is obligated to deal with.

I understand that the winner of the junior auction is not liable or responsible for the debt secured by the senior lien/note. However, if the home goes to foreclosure again, it is the junior auction winner that stands to loose the most, as the new deed holder. 

My thoughts are that the bank wouldn't accept any payments from the winner of the junior auction. The bank would be more interested in foreclosing again. Remember that the first auction was triggered by the junior lien and the winner receives a clouded title that still comes with the senior lien attached.

Ok but you're saying foreclosing or re-instating gets them the same amount of money more or less. They only get to keep the part that is outstanding to them. 

There are rules around this idea on a per state basis.  Understand that to foreclose means to terminate all junior interested parties right or equity of redemption in the property.  As such an auction buyer can exercise those rights since buying at auction grants an interest in the real property.   

If the auction buyer is within that time of redemption right then the senior can not deny the payoff.  Further, auction buyers as a real property owner have a statutory right of notice to a senior's foreclosure, which starts the clock of redemption that must be afforded or that owner can contest the foreclosure all together.  This gets a little hairy with certain timing issues as what happened first in time and then second with regards to certain milestones in the senior's foreclosure process and when the auction buyer took title.  Again, that becomes fairly state concentric.

Thanks Wayne and Dion for setting me straight. I looked into the right of redemption period in NC, and it stands at 10 days after the end of the foreclosure sale. The 10 day clock restarts each time there is an upset bid.

Unfortunately the amount due during this redemption period is full balance plus all costs associated with the foreclosure process. 

I wonder how difficult it is for a winner from a junior auction that now holds a trustee's deed to establish contact with the lender prior to the foreclosure of the senior lien? Establish contact and arrange a payoff so that the lien is cancelled before the foreclosure process is triggered by the "Power of Sale" clause in the senior lien aka Deed of Trust in NC.

Try contacting the Trustee listed in record.  That will be easier than tracking down the servicer if the process has started.

I bought a junior lien and now need to reinstate the 1st.  my worry is that after reinstating, I can't make payments to the 1st.  The trustee has told me the reinstatement amount, and I have a list of monthly payments that need to be made, but they won't tell me who the 1st is and how to get a hold of them to set up payments. 

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