Risks by second lien when first lien has foreclosed on home

[Devin Bobulski]

Thanks in advance for the advice.

There's a home that is close to my primary residence in Wisconsin where Wells Fargo has foreclosed on the first lien. The sheriff's sale has been delayed over the past 6 months and looks to go this week. I had a title firm run a search and found that Quicken has the second lien and has filed paperwork to foreclose 3 months after Wells Fargo completed their foreclosure. My understanding is that the second lien has no bearing after the sheriff's sale. They will get any money that is made above what Wells Fargo recovers on the sale. Is this correct and is there anything else to watch for? The property is vacant and winterized so the odds are the house will be a great rental for BRRRR strategy.

[Jeff Cichocki]

Unfortunately, the answer can vary by state. In Wisconsin, the best thing that the 2nd can do is file foreclosure prior to the first filing. While it's an unwritten rule, the first will rarely file if another lender behind them files. It's basically done as a lender courtesy. @Scott Schultz answer above does a good job of explaining what happens and what most of the variables in Wisconsin are. There's a lot of meat in his answer. if you didn't catch everything, you may want to reread it a couple of times.

Excess funds in Wisconsin, typically end up in the county's hands because the homeowner has no idea that they can file for the excess prior to foreclosure. Once foreclosure happens, their proceeds are forfeit. Wisconsin is one of the worst states for homeowners regarding excess funds. Most other states reserve the funds for a period of time (some states hold indefinitely) and allow all lien holders to claim against the excess up to the amount they are owed. In those states, the homeowner also has a right to claim, but only after the lien holders have been paid first. If a homeowner attempts to claim those funds and the lien holders haven't claimed yet, most counties will reach out to lien holders to ask if they would like their portion prior to sending the funds back to the homeowner. Lien holders almost always make claims at that point.