It sounds like to me you bought a second position. Many times a lender will try to foreclose on a second to see if a sucker (inexperienced investor) will buy it.
Many fail to ask if they are buying a first position or a second.
You said you know the property has plenty of equity even with the first.How do you know that???
The first could have 1 to 2 years of back payments accumulated over time from making a payment one month,then going for a loan mod,then going for a short sale,or filing a BK.
Over time they could be tens of thousands behind and then you add in penalties,fees,and interest,back escrow,and attorneys feed.
Now the principal balance on the first has ballooned up really big. This doesn't even account for additional liens etc. that can be added on after the second is bought.
Since the first is still on the property many liens can be attached.
Contrary to popular belief the the 1st and the second are 2 different loans with different payments and numbers.The asset manager on one loan has the duty to limit losses for that one loan while the other AM handles the first.
So the first and second positions have different goals in mind.
Many seconds are worthless.
Example had a customer call the other day.
4 bed 3 bath bought in 2006 for 160,000.1st 130,000 second 30,000.
Now properties are selling foreclosure for 89,000 REO. The first is owed about 152,000 with back fees. The second isn't going to spend 152,000 to get an asset worth 89,000 to try to recover 30,000.
They will just sit and wait,or try to sell the note off to a sucker,or sell the note off for a discount and tax write off the rest.
If foreclosed and they get nothing they can sell to an asset recovery company. Options available will depend on state foreclosure laws and collection practices.