2nd Mortgage Foreclosed Before 1st Foreclosed - Who's In First?

9 Replies

I'm in CA and here's the scenario. A property is worth $600K. There is a $50K first mortgage and a $450K second mortgage. Both loans have been defaulted on and there are two auctions dates set. The First mortgage has the first date, however, the second mortgage lender filed NoD 9 months prior to the First lender. What happens?

Can I safely try to buy the house at the first auction for the First mortgage, or does the fact that the Second lender got defaulted on first cause problems? 

Yep, the first mtg will Always be in first position....it doesn't matter who files a NOD first, who gets to the actual sale first or who blows their nose first....the first is the first.

But something to check....with that small of an initial mtg, and that large of a second....the second mtg May have gotten a subordination from the original mortgagee, now making the second mtg in first position.  It is rare, but I’ve seen it on two foreclosures.  Read all the documents recorded in relation to the second mtg, they are typically recorded together, as one document.

Promotion
BAM Capital
Multifamily Syndicator
Targeted 10% Monthly Returns | Passive Income
Backed by institutional-grade apartments, strong sponsor track record, $700M AUM, over 5,000 units
Learn More
Originally posted by @Jay Hinrichs:

interesting scenario.. I suspect the first if it goes to sale will wipe out the second even though the NOD has been filed.. you have to prosecute the foreclosure .. NOD is just a notice.

Hi Jay - Thanks for the reply. Just to be clear,  both of the lenders have foreclosed.

Originally posted by @Wayne Brooks:

Yep, the first mtg will Always be in first position....it doesn't matter who files a NOD first, who gets to the actual sale first or who blows their nose first....the first is the first.

But something to check....with that small of an initial mtg, and that large of a second....the second mtg May have gotten a subordination from the original mortgagee, now making the second mtg in first position.  It is rare, but I’ve seen it on two foreclosures.  Read all the documents recorded in relation to the second mtg, they are typically recorded together, as one document.

Hi Wayne - 

You touched on my fear and basic knowledge, that deeper research is needed becuase of something like the scenario you bring up. Am I looking for a standalone document that might have been recorded by the 2nd lender, or would it be some sort or addendum added to the 2nd loan that was signed by the 1st lender? Any clues as to where to look and what specifically to look for would be appreciated.

Thanks

Originally posted by @Scot Burns:
Originally posted by @Jay Hinrichs:

interesting scenario.. I suspect the first if it goes to sale will wipe out the second even though the NOD has been filed.. you have to prosecute the foreclosure .. NOD is just a notice.

Hi Jay - Thanks for the reply. Just to be clear,  both of the lenders have foreclosed.

your confusing foreclosed with NOD.. the NOD is just a notice to foreclose.. if they have foreclosed then either the bank now owns them or a 3rd party who bid at the sale.. the final disposition is the foreclosure.. so you have in foreclosure and foreclosed.

@Scot Burns Usually a subordination is attached to the new mtg, recorded all as one document recording, but could be recorded separately. 

And to clarify a point...

It makes no difference whatsoever who "files" foreclosure/NOD first, only who gets to the sale/ auction first

If the first mtg foreclosed first (got to the auction first) the second no longer has any lien on the property (assuming they were named/served)

If the second forecloses first, the first mtg remains and their foreclosure proceeds unaffected. I have seen uninformed buyers here buy at an HOA auction on Monday, then lose the property to the mtg foreclosure on Thursday.

@Scot Burns Obtain and review a preliminary title report. I agree with what Wayne's post. Always ensure you are 100% aware of what position you are buying into and what that entails when the dust settles. Buying subordinate positions unknowingly can be costly.

NOD = Starting Foreclosure. Foreclosure is a process.

When a home is foreclosed on that is when the axe comes down and the foreclosure process is over = After auction and home is sold to a 3rd party or reverts to a bank owned asset.

Originally posted by @Jay Hinrichs:
Originally posted by @Scot Burns:
Originally posted by @Jay Hinrichs:

interesting scenario.. I suspect the first if it goes to sale will wipe out the second even though the NOD has been filed.. you have to prosecute the foreclosure .. NOD is just a notice.

Hi Jay - Thanks for the reply. Just to be clear,  both of the lenders have foreclosed.

your confusing foreclosed with NOD.. the NOD is just a notice to foreclose.. if they have foreclosed then either the bank now owns them or a 3rd party who bid at the sale.. the final disposition is the foreclosure.. so you have in foreclosure and foreclosed.

Sorry, yes, I misre presented what I meant. Coffee hadn't kicked in yet. What I meant was both  

Thanks everyone. I'm digging in deeper trying to figure out if there is  subordination, or possibly some sort of oversight/mistake by title. I'm workignn with a friend who is a mortgage broker, so we shoudl be  able to untangle things.