If the 2nd sells for more than what is owed who gets the reminder?


#1

I saw a case where the 2nd which was about $120,000 went for $210,000. The 1st is $500,000 and the house is worth about 900,000.
What is left over pays down the 1st or?


#2

Hi Kim,
In any trustee sale any overage would go back to the former homeowner. If there were other junior liens they would have a claim to the overage before it went back to the owner.


#3

Shouldn’t the overage go the the 1st? The 1st hasn’t foreclosed and is till owed $500,000.


#4

Hi Kim, The first is going to be paid in full by the investor or the 1st will foreclose and wipe out the ownership of the investor that purchased the 2nd (regardless of how much was paid at the sale of the 2nd). The overage does not go to the first which would only benefit the investor that bought the 2nd.


#5

Thanks, that was quite helpful.


#6

Michelle, a follow up question. So if you buy the 2nd then you have 1st dips on the 1st? For example in this case if the buyer of the 2nd pays off the 1st they still got it for less than if they had to purchase it via MLS.
The 1st will want to sell to you? Or could they still foreclose and you are out all your money?


#7

Hi Kim, When you purchase a 2nd at trustee sale you are responsible for the payment of any senior liens or loans as well as past due property taxes. If there is 100,000 in past due interest owed on the 1st then you would need to pay that as well. In most Deeds of Trust there is an acceleration clause that if there has been a transfer of the beneficial interest (purchase of the 2nd at trustee sale) then the entire amount becomes due and payable immediately. As the buyer of the 2nd you would want to pay off the senior liens or loans as quickly as possible since additional interest is accruing not to mention a foreclosure of a senior lien would wipe out your ownership interest as the buyer of the 2nd. The first is not “selling” to you. In this case you would be paying the 1st off. In your case listed above the 1st is in a very good equity position and if they foreclosed they would likely be able to recover the full amount of their lien.