I have been looking into a property that is in pre-forclosure. The foreclosure auction is happening this week. From what I have been able to find at the recorders office it appears that there have been two mortgages taken out on the property. One of the mortgage holders is going through the foreclosure process. So if I can not get the owner to talk with me about selling the property, what happens when someone buys one of the mortgages? It would seem like there would be two people who have a claim to the title and you would not be able to take posession of the property from the owner, you would only be able to have a lien against the property. Is this correct?
The first lien holder has the most interest in the property. So if the first is foreclosing then the second has a chance of becoming wiped out. If that is the case then you can purchase the 2nd at a discount and cure the first. Or there are plenty of other ways to tackle a pig.
:smileyb:
So my understanding of first and second is it is date driven not dollar amount. So the first is the earliest lender and the second is the subsequent lender.
A first mortgage is the mortgage that actually is the primary mortgage. It is the superior lien on a property. You can have 5k first and 88k second and the first is the one that recoup all their money first and any proceeds left over go to the 2nd then the third and so on. Date doesnt matter either.
A first mortgage and a second mortgage are first and second due to their recording on the public record. If you take out two mortages the same day, the one that records first will be in first postion and the others will become junior liens.
So the fact that the second mortgage lender is proceeding with a foreclosure is not going to give the lender or anyone they sell their interest in it the ability to remove the owners from the property as long as the owner keeps the first mortgage current. Sure it will hurt their credit and they will have a lien against the property, but they can stay put. So am I correct in assuming that the second mortgage lender is basically out of luck on collecting their money until the owner decides to pay or can find someone crazy enough to buy their interest in the property.
The second lender will have to notify the first lien holder that they are about to foreclose. Giving the first lien holder an option to buy out the lien. If not then the second holder sends the property up for auction, but if the first receives all the proceeds first then anything left over from the sale goes the second and if there is any more more. Lucky for the homeowner will then get what ever is left.
Thanks for all the replies. Restate the last response to make sure I understand correctly.
Once the second lender starts the foreclosure process they notify the first lender and asks them if they want to buy out the lien. If not the property is sent to auction.
So what happens in the event if the proceeds from the auction do not cover all that is owed to the first lender?
In the property I am looking at the min. bid amount is set only slightly above what the second lender put in their notice of default and appears to be amount that would account for additional interest to date. It does not appear that it would include any amount from what might be owed to the first lender.
What about tax liens as well. Where do they fall in the mix?
I have been to auctions and when second mortgage comes for auction. The successful bidder also pays off the first mortgage. There is no way out of it, at least in Illinois.
When you are a successful bidder at a foreclosure sale, you have bought the property not the mortgage.
If it is a first mortgage, all of the junior liens disappear. If the second mortgage forecloses, you must still pay off the first mortgage after the sale. Unpaid Property taxes must be paid as well as home owner association fees.
If there is an IRS lien against the property, the IRS has a four month redemption time to buy the property at the price you paid for it plus interest. Some states also give the previous homeowner a period of time to redeem the property.
You should check the foreclosure laws in your state. It is also recommended that you buy one of the inexpensive courses on buying at foreclosure.
You may also look for an experienced person who is willing to train you for a fee.
Thanks for the input Consultant. Your explanation makes sense. I had already checked on the redemption issue for the owner. In Alaska if it is a judical foreclosure then the owner has 1 year to redeem the property. If it is not a Non-Judical foreclosure they are not able to redeem the property once the auction occurs.
I agree that if I am going to get into this I should get some training.
This Non-Judical foreclosure sale is off though, the owner was able to get additional financing. It would have been a great deal if I could have accomplished it within the limits I had set.
Consultant that statement is part true other part no even.
First it doesn’t matter who files foreclosure whether it is 3rd or 4th lien holder or 10th or 12th. The way the payments work is as such. The property tax liens gets first shot at the proceeds from the sale or auction. Next as follows;
*The state liens
*First lien holder
If any money left over then what is left goes to pay off;
*the secondary lien holders
*any mechanic liens
*credit card liens.
If the money runs out before paying off any of the other lenders or lien holders then what they will do is…
So the other liens after the superior lien holder is paid, and the secondary lenders are neglected. They may lose out on the proceeds of the auction. But they still are entitled to recourse and that means they can garnish your income taxes and wages, just so that you know.
I buy properties and also finance purchases at the foreclosure sales. I have been doing so for several years. I do more than 100 per year and do foreclosures in more than one state. Each state has different laws and it is important to know and understand the laws where you are looking to bid. However, the basics are very similar.
It is great that each of us has the opportunity to ask questions and give opinions in this forum. However, there is a responsibility to state only those facts that we know to be accurate. I would suggest that you contact a foreclosure attorney in your state and pay them to explain the process to you.
I appreciate each persons input. I do not mean to be offensive but it is important to clarify this subject.
And, yes, in many states, lenders may go after the previous homeowner for a deficiency judgment but this is not allowed in all states. The purchaser at foreclosure sale is not affected by this.
Charlotte, can you please tell me where you learned, or read, or heard that the IRS get first shot at proceeds? If this is true, then i must be reading or understanding something wrong, because everything I have read says the IRS is in whatever position they fall in. If they are always the superior lien, I need proof of it, because it contradicts everything I have ever read. This is very important. I need you, or someone to tell me about this. Thanks in advance.
Consultant,
It not offensive when you correct someone when they are wrong, but you totally miss the point with a pompous response. Not acceptable at all. I never said the purchaser would be affected by the sale.
Why would the seller be affected.? Tell me where i said that.
Excuse me but i meant tax liens generally are given priority over other liens. Also special assessment liens are given priority over other liens. Meaning if the homeowner does not pay property taxes on the property, and the mortgage lender pursuing a foreclosure, and ends up going to the auction, what ever the property sales for whether the first mortgage holder receives all of their cash or not to cover the cost of the mortgage, the property taxes will get their fees regardless. If they dont receive their share then the property didnt sale at the auction.
Charlotte, I had a discussion with a Raleigh, NC attorney today about IRS liens. He is the Trustee for a foreclosure which I am buying. He clearly told me that the IRS liens are junior to the first mortgage. The first mortgage has foreclosed in this case and I know that the first predates the IRS lien. He told me that the IRS would be in line for money only after the first is satisfied.
However, he said that the IRS had a 90 (not 120) day period, during which they had the right to buy me out for the price which I paid for the property. He said he had never known a case in NC that the IRS had done this. Even so, that will lock me into a period of 90 days during which I can’t sell it and it would be risky to do repairs.
Consultant, I have not researched the 90/120 day issue. I am just relaying what the trustee told me. Also, I think your posts have been diplomatic and full of good information. Stay the course. We need knowlegeable folks on here who are willing to share information.
(1) Right to redeem.–In the case of a sale of real property to which subsection (b) applies to satisfy a lien prior to that of the United States, the Secretary or his delegate may redeem such property within the period of 120 days from the date of such sale or the period allowable for redemption under local law, whichever is longer.