Second mortgage foreclosing and claimed priority over first, bidding

2 Replies

I see an instance where a property has two mortgages, Mortgage A (by Bank A) recorded earlier, and Mortgage B (by Bank B) recorded later. Mortgage B does not have any subordination language, nor does it indicate HELOC language. An no additional financing or subordination agreements are recorded.

Strange thing is, Bank B is foreclosing on this property, naming Bank A as defendant, claiming it has superior interest against all defendants (including the listed Bank A).  It appears that Bank A has not responded to the complaint, and the foreclosure judgement was been executed, scheduled for an auction date soon.

In this case, will a third-party buyer get a free and clear title (not subject to First Mortgage) if they win the auction?

Assuming auction takes place, and third party wins, can Bank A realize its mistake and file an appeal later on?

First of all, Bank B does not have to have a subordination clause as it's already subordinate by nature of the later recording date. Subordination agreements are typically filed when a borrower refinances their first mortgage while leaving the second mortgage in place. As far as the foreclosure goes...yes, the subordinate mortgage CAN foreclose but it will likely be purchased by the primary mortgage holder in order to protect their interest in the property. I believe that, if the scenario plays out as you indicate (3rd party wins auction) then, yes...they would have the property free and clear of any liens other than back taxes or any outstanding Federal liens.

Don't hold me to any of this. I haven't been in the title industry since '08. :)

@Jim Viens We're in violent agreement. Both if you guys are looking in the right place, however.

The challenge with title matters like this is that a title battle is often long and drawn out. Even a seasoned "title turtle" like me knows that I could be in for a long ride and tie up lots of capital. 

But DO hang in there. 

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