Effect of Foreclosure on the Second when the First Forecloses Let’s say that you find a foreclosure that is worth $100,000 and the property owner owes the Bank on a 1st mortgage $60,000 with $500/mo P & I and owes a 2nd mortgage $10,000 with $100/mo P & I The Bank (1st Mortgage Holder) is Foreclosing and the property goes to a public sale. The highest bidder will own the property. The proceeds of the sale will be paid to the first mortgage holder (bank) first; to the second mortgage holder second; to other lien holders, if any, third; and the remaining proceeds will go to the owner.
Example: Case 1: You are the high bidder at $75,000 (You are now the owner of the property)
„h $60,000 will go to the 1st mortgage holder
„h $10,000 will go to the 2nd mortgage holder
„h $5,000 will go to the original home owner
Case 2: You are the high bidder at $65,000 (You are now the owner of the property)
„h $60,000 will go to the 1st mortgage holder
„h $5,000 will go to the 2nd mortgage holder
„h Nothing will go to the original home owner
Case 3: You are the high bidder at $60,000 (You are now the owner of the property)
„h $60,000 will go to the 1st mortgage holder
„h Nothing will go to the 2nd mortgage holder
„h Nothing will go to the original home owner
Effect of Foreclosure on the First when the Second Forecloses Same story as above but the 2nd is foreclosing! Foreclosure is worth $100,000 and the property owner owes the Bank on a 1st mortgage $60,000 with $500/mo P & I and owes a 2nd mortgage $10,000 with $100/mo P & I The Bank (2nd Mortgage Holder) is Foreclosing and the property goes to a public sale. The highest bidder will own a note. The proceeds of the sale will be used to satisfy the second mortgage holder. The high bidder now must contact the first lien holder, to purchase the mortgage holders. Keep in mind that no lender has to sell their note. To actually own the property you will have to start a foreclosure proceeding after you purchase the 1st mortgage. Note: If you do not purchase the 1st mortgage and just hold the 2nd mortgage and the 1st mortgage holder forecloses on the property and not enough funds to cover your note come from the sale or the property is purchased back by the bank “Becoming an REO” you will loose you investment.
Now keep in mind that when your purchase a 2nd or 3rd you will get a deed, but the deed is subject to all other liens on the property.
I look at it this way - you have a deed - but limited control of the property
For me it’s like having a note secured by real estate