I am looking at a property which is foreclosed.
It had below events on property:
1\1\1999 Deed of trust -- Owner1 -- ABC Mortgage1 (Subsequently Released)
1\1\2000 Deed of trust --Owner1 -- XYZ Mortgage
2\1\2000 Release --Owner1 --ABC Mortgage1
1\1\2002 General Warranty Deed With Vendor's Lien
Note: Document also mentions about DEF Mortgage being first Lien mortgage
1\1\2002 Deed of Trust --Owner2 --DEF Mortgage
Appointment of substitute trustee on DEF Mortgage to Owner2
Considering above events on property will the XYZ Mortgage of owner1 wipe out when the foreclosure auction happens on "Owner2 --DEF Mortgage" ?
Or what will happen if I buy the property?
If lender XYZ is properly noticed in DEF's foreclosure then, yes. It will be eliminated in DEF's foreclosure.
Foreclosure notice doesnt mention about XYZ lender.
Or should they be noticed after auction and closing?
I am naive so did not get your point can you please explain your answer more.
A foreclosure of the 2002 deed of trust will not wipe out the 2000 deed of trust even though it was a loan to the previous owner. That said, it's likely an error in which the former owner's deed of trust wasn't reconveyed but finding out conclusively is likely difficult or impossible. If the 2002 lender takes the property back and the 2000 loan is in fact still outstanding, they'll have a claim on the lender's policy of title insurance, but you would not have that protection if you were a third party bidder at the foreclosure sale.
XYZ will still be the senior lien holder and all rights preserved meaning, they can and will foreclose and wipe everyone else out if theye are in fact validly the senior lien holder. No foreclosure behind XYZ will wipe out XYZ. Even if someone forecloses (Anyone), XYZ is in line to get paid first no matter what else transpires. They can simply file their own foreclosure.
If I were XYZ, I wouldn't bother with the title claim or going to court to invalidate the sale. I would just file my foreclosure and be done with it.
@Ron S. is right. And my earlier response wasn't clear. If DEF's loan was originated in what was supposed to be first position and the title company was supposed to have paid off XYZ (which is likely the case since this appears to be a purchase money loan contemporaneous with a transfer to a new owner), but failed to do so, and DEF subsequently forecloses, DEF would have a claim under their lender's policy of title insurance if they foreclose and end up with the property subject to XYZ's deed of trust.
If you bought the property at DEF's foreclosure sale you do not get the benefit of DEF's title insurance--you bought the property subject to XYZ's deed of trust and you'll likely encounter a large loss. If XYZ was paid off in the escrow but simply failed to cause a reconveyance to be recorded, the title defect is correctable if you buy at DEF's foreclosure sale and you'll likely be fine, just a little inconvenienced. The trouble is that you have no way to know for certain which is the case prior to bidding in most cases.
Thanks Brian and Ron that was helpful.