Can a Foreclosure Auction be for a non-first position Lien?

Question

Hi All, I am curious about the technicalities of Foreclosure auctions.

For example, is it possible that second position or third position liens are being auctioned but the First position mortgage isn't?

I understand the concept of checking for surviving liens such as Property Tax, but wanted to confirm that any foreclosure auction is for the First Position lien not any other lien and then our due diligence involves checking for other liens that may come due upon winning the auction.

Seems odd to me that you would see a $1,000 HOA foreclosure at auction but the mortgage isn't included that day, but want to confirm that can't happen.

Thank you again!

Steve Morris · Answer

Welll, what hasn't changed is who is senior and who is junior.  Senior is the first-in-time recorded lien or debt.  So he (usually) needs to be 100% satisfied before the next guy in chain gets $0.01.

And that's why junior debt is more expensive.

Steve Morris · Answer

I guess you could, but the 1st position guy has most at stake and needs to be satisfied before #2 gets $0.01.

So a junior debt holder going thru the trouble of foreclosure seems kind of poor investment for them.  They'd probably just record some kind of lien instead of a foreclosure?

Ron S. · Answer

Each one is different and the reasons behind each one is also different. We aren't in 2008-2012 where we knew the reason for the foreclosure.

Steve Morris · Answer

That's great and all, but if the first forecloses between the loan, interest and lawyer fees / penalties, there's probably ZERO equity left.

HOA would be better to record the lien and wait until the guy sells to release it.

Walter Holmes · Answer

usually second mortgages foreclosure if they believe there's enough equity in the property to pay the first (they hold collateral) the second position gets whatever is left over. Some 2nd position loans might also hold a  have a subordination which will allow them to collect and THEN the surplus goes to the first.

HOA liens are different than "regular " jr liens since their Governing documents actually allows the bid winner to get a certificate of title and move right in (until 1st position forecloses).

Tax as well as HOA liens survive the fcl . Tax certs fcl will intact wiped off the 1st position , hoa liens must be paid in full by whoever buys the fcl in order to obtain clean title (safe harbor allows lenders to pay only a % of whatever is owed).

Verifying you are buying a 1st position loan might be the most important thing before buying at auction.

There's more to it, so make sure you get help with title related issues before pulling the trigger....

ohhh yeak inorder for a lien to be wiped from the title , the lean holder should be named in the fcl auction.

Ron S. · Answer

They already recorded a lien. Their junior lien.

I would not buy an HOA foreclosure unless you know the outstanding balance of all liens/loans. I won't say most but many HOA foreclosures were as the result of a yahoo HOA board not knowing what they were doing or should have done. Their attorneys didnt' know any better either.

If, as you put it, the first gets satisfied, guess what, the junior steps in as senior so, if its HOA foreclosure, all have to be satisfied. If the numbers work out, great. They often don't.

Drew Mathews · Answer

Thank you Ron! So would it be safe to say, if there is a lender lien or higher position lien, no reason to bid on an HOA lien at auction?

Ron S. · Answer

yes...every day. Very common for a junior lien to hold a foreclosure auction. HOA also very common but, depending on what stat it is, the lender's liens usually survive an HOA foreclosure.

Drew Mathews · Answer

An example of this on the Auction site is that the Plaintiff shows HOA for this auction even though the original mortgage has also been foreclosed on per the county records. So just a bit confusing if this auction is for the HOA lien, not the mortgage lien.

Can a Foreclosure Auction be for a non-first position Lien?

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