I’ve read through your posts, thank you for the great info! But I had a few more questions and I am hoping for some clarification. I am getting ready to bid at an auction, I ordered a preliminary title report and it’s clear other than the 1st and the 2nd mortgages. I am worried about there being other liens that are not listed. Should I be searching both of the owner’s names to make sure there are not personal liens against the home as well? Or if the preliminary title report didn’t show anything is that good enough? Should I pay to have a full title report done? Also, If the 1st loan is for 600K and the 2nd (home equity line of credit) amount is 200K and bidding starts around the 600K range is this enough to “assume” I am buying the auction from the 1st and thus the 2nd will be wiped out? I am purchasing to live in the home not as an investor. Do I have more “legal rights” as opposed to an “investor?”
The 1st and 2nd are from the same bank but currently opening bid is set just a little over 1st. I realize that this is just an estimate and no weight can be put into this number, but the 2nd is a line of credit. So on auction day if the opening bid is just a little over the 1st loan amount does that mean that the 2nd is either non existant (they didn’t use the line of credit) or could that mean that I bid and then later realize that I really way over paid for the 2nd and am now still on the hook for the 1st? THANKS for your help!!!
Prelim should show lien prioity. In CA, the lender is restricted by law to an opening bid that is no more than the debt plus other costs, such as legal and trustee. The amounts of the liens is not a reliable way to determine priority, although in the situation you describe it is likely to be that the loan with the higher balance is the 1st. I have seen errors in recording sequence that changed the priority. It was a simple mistake, but it legally changed the priority.
You mention opening bid, are you sure tha it is the opening bid and not the published bid?
Yes, it’s the published bid I realize that you don’t know the opening bid until day before or day of. So if the 1st and 2nd are held by same bank…are you saying that the bank can only put out a bid of the amount of the 1st plus costs, so even if it’s the same lender for the 1st and 2nd they can’t combine their costs for the 1st and 2nd? Is it possible that they really are foreclosing on the 2nd even if the opening bid comes out around the 600 range or are you saying not to worry about that because they legally cannot do that? I’m worried about purchasing said home thinking I was getting the first only to then find out…suckka… you bought the 2nd and now I’m still on the “hook” for the first. Thanks!
Each loan needs to be taken to foreclosure separately. Each foreclosure notice will refer to a specific loan by document number and recording date. Match the foreclosure to the loan using that information and you’ll be fine. Do note that a 2nd can advance funds to keep a 1st from foreclosing. In the very rare instance that a 1st was due in full it is technically possible that a 2nd could advance the funds to pay off the 1st and include those in the balance due in its foreclosure. Very, very, unlikely, but could be a possible explanation if you see a 2nd with a published or opening bid far higher than the loan amount. I wouldn’t personally bid in this situation unless I could verify what the extra dollars were for. Bottom line - you can’t rely on dollar amount to determine what you are bidding on, instead you have to match the loan by document number and recording date.
Thanks Sean! I looked and the recording number/loan number and recording date is for the 1st. But if the first can’t combine the 1st and 2nd loans (same lender for both loans) then it seems like they wouldn’t want to foreclose. If the forclosure paperwork hasn’t been recorded on the second loan then when it goes to auction it can only be for 1st + fees etc. Is the banks only other recourse to try to get as much of their money out of it to have someone from the bank go to the auction and drive up the bid until it covers the first and second or it gets so high that no one wants to bid and it goes back to the bank and then they put it on the market to get as much out of it as possible. Then it seems like I shouldn’t waste my time on any homes where the 1st and 2nd are the same lender…? What’s your take on the 1st and 2nd being held by the same bank? Thanks again Sean your website is the best in this business!
Most banks write off their secured interest in the second these days. If they do anything with it, it is usually just to go after the borrower for the loss. Also, when a 1st and 2nd are held by the same bank it is often two different departments and they don’t work with each other. Have seen many short sales where the 1st won’t offer more than $5000 to the 2nd, and the 2nd won’t accept less than $10000 (for example), so the short sale dies — yet both the 1st and 2nd were held by the same bank. Insane. Glad you like the site, thanks for the kind words.