Virginia Foreclosure Law - Second Mortgages

[Steven Benecki]

In the state of Virginia, is it true that if a property has second mortgages, and the primary mortgage sells the property at foreclosure auction, the second mortgages are removed from the property? Does this apply in all cases no matter what type of second mortgage? Also, what if second mortgages have initiated the foreclosure process at the same time? I am trying to understand what circumstances I need to watch out for. Thank you!

[Don Konipol]

That’s the definition of junior lien. In every state once a foreclosure sale is concluded, ALL liens (except IRS) are wiped out as to the property securing that lien.  However, the note itself is still in effect as a liability of the maker of the note and any guarantors.  So in effect it becomes an unsecured note.

To understand this it’s important to understand that what’s commonly referred to as a mortgage is actually two separate legal documents - a promissory note and either a mortgage document or deed of trust that “perfects” the lien attaching to a specific piece of real estate.  The priority of liens (with the exception of property tax liens which are superior to ALL other liens) is determined by the order (as to time)  in which the liens are recorded.  This can be changed if a superior lien executes a subordination document and that document is filed properly. 

All states have specific procedures which must be followed leading to a foreclosure sale.  The most common claim of note holders being wiped out by foreclosure of superior liens is that they did not receive proper notification.  This is often the result of their having changed address so that their current address differs from that as indicated in the original mortgage instrument.  

This is assuming that the superior note holder was ever notified that a junior mortgage note was being placed on the property and agreed to specific terms and conditions as to its acceptance and notifications.