First position and second position to foreclosure

[Horacio Gutierrez]

Hello,

Say there is a first note and second note on a home if they buyer gets foreclosure by the first position what happens to second position loan does he get paid by the loaner in the first position if there is equity or can second position become borrower and keep paying the first position or ny law the home needs to be sold for first and second position to get paid?

[Wayne Brooks]

In a foreclosure by the first, the second gets wiped out....if the suction bid was for more than the first was owed then the second would get the surplus funds. 

[Horacio Gutierrez]

So with the fore closure by the first the. The lender first cannot keep the home and rent he needs to sell immediately to pay off the second if there is more equity than the first loan?

[Wayne Brooks]

@Horacio Gutierrez No.  The first mtg will only bid up to what they are owed at the auction.  If the first mtg holder gets the property back then it was for Less than what they were owed.  If a third party, investors, bid the price up Above what the first mtg is owed, then the first mtg gets what they are owed, the second mtg would get the balance (surplus).

[Felix Shraga]

Hypothetical scenario:

1st lien - 100k

2nd lien - 30k

market value - 200k

The property gets sold at an auction for 100k. The 2nd position is wiped out. I come to the homeowner before the redemption period is over and he signs off a deed to me. I pay the 1st lien 100k. What about the 2nd lien? 

[Ron S.]

Originally posted by @Felix Shraga:

Hypothetical scenario:

1st lien - 100k

2nd lien - 30k

market value - 200k

The property gets sold at an auction for 100k. The 2nd position is wiped out. I come to the homeowner before the redemption period is over and he signs off a deed to me. I pay the 1st lien 100k. What about the 2nd lien? 

My opinion would be you owe on the 2nd then because the senior lien foreclosure was redeemed. You take the deed subject to the 2nd and now they can foreclose on you if you don't pay them off.

[Wayne Brooks]

@Felix Shraga When one redeems after a foreclosure, the original debt is repayed and it is if the auction never occurred....the second mtg would remain. 

[Felix Shraga]

Thank you guys

[June Crile]

Looking for hard facts on Alabama foreclosures.

Some states legal notice will specify if the loan in default is being foreclosed "SUBJECT TO" another mortgage.

In Georgia the notice states "Said property will be sold subject to (a) any outstanding ad valorem taxes (including taxes which are a lien, but not yet due and payable), (b) any matters which might be disclosed by an accurate survey and inspection of the property, and (c) all matters of record superior to the Security Deed first set out above, including, but not limited to, assessments, liens, encumbrances, zoning ordinances, easements, restrictions, covenants, etc. The sale will be conducted subject to (1) confirmation that the sale is not prohibited under the U.S. Bankruptcy Code." www.georgiapublicnotice.com.

Does anyone KNOW Alabama law, know for sure because the legal notice does not specify "subject to any liens superior", please no guesses.

Many Thanks.

[Chris Seveney]

@Horacio Gutierrez

Some posts here are not clear so let’s break this down

1st lien - $100k

2nd lien - $50k

If it sells for $100k - first gets house and second gets wiped

If it sells for $120k, first gets $100k, 2nd gets &20k

If it sells for $200k - first gets $100k, 2nd gets $50k and homeowner gets $50k

Typically the first will bid what it’s owed which is $100k, but if it bid more, then it does not change who gets paid what.

[Mike Hern]

And be careful about state laws regarding foreclosures wherever the property is.