Junior Loans Being Wiped Out at Auctions or Not???

Hello Sean,
My husband and I have an opportunity to purchase a home at trustee’s sale on November 7, 2011. We actually did a market analysis to see if it was a good investment. The paper stated the opening bid is $119,000 and the house is worth between $170,000 and $180,000. The 1st has foreclosed on the house for the $119,000. We contacted the owners to see if we offered them cash with an extra $10,000 before going to auction if they were interested. Found out through them that they also owe a 2nd of $100,000. We have a hard money lender willing to lend us the money with 7% interest for five years until we told him we would have to buy it at auction. He said he would never lend for an auction purchase because too many things can go wrong. He said you can’t buy title insurance on the house to guarantee the junior liens wouldn’t have rights. I was under the impression, the 2nd will be wiped out, correct? Tri-Counties bank holds the 2nd and has not foreclosed on the property. Am I not able to do a preescrow title search and then purchase title insurance? He would rather I talk the sellers into a short sale which means we are going to pay a much higher amount most likely. Can the 2nd come back later and sue us if we were to purchase the property at auction and would my title insurance protect us from that? By the way, we are in Northern Calfornia!
Thank you,

I have no idea who you are talking to at the lender but the 2nd is legally wiped off the property when the 1st trust deed forecloses. The leder on the 2nd may choose to pursue the pior owners for a judgment, but highly unlikely.

You can get title insurance on the property, but only after you pay the cash and record the Trustee Deed from the auction which shows that you have ownership. Your best bet is to call into a title company, tell them you want to purchase title insurance after your purchase at the auction (which means you are going to give them business) and ask them to review title for you.

Be very very careful with all of the other liens that could possibly be on the property such as mechanic’s liens, IRS liens, etc. These are called involuntary liens and the title companies do not really work hard to find these (until they have to issue title insurance).

GJ is absolutely correct.

Would I just go the county recorder’s office to make sure if there are any mechanic’s liens? Thank you for your time! Just to re clarify…even if the 2nd deed of trust (the Junior lien) has been recorded, it still gets wiped out at the sale of the foreclosure? How would I make sure they haven’t pursued foreclosure as well other than taking the homeowner’s word for it? I’m a novice at this…so bear with me! Thanks again, Sandy

You will need to go to the Recorder’s Office and sit down and research anything and everything that has the owner’s name, and any possible varations of the name. Don’t forget to research both husband and wife or ALL names on the trust deed or ownership of the property.

Hi Sandra, We have a recorded webinar on Title Research that you can watch at any time. To view the recorded versions of our webinars please click on “Webinars” under the Support and Training tab on our home page. You will then scroll to the bottom of the page to see the previously recorded webinars that we have on file. You can also register for our free webinars and view the recorded version by clicking on the following link: https://www.foreclosureradar.com/webinars

Sandra -

  1. What County are you in?
  2. The is someone on this forum with a title company named Simon Wu who might be able to help you with your title policy situation. Can’t recall his phone number - but search this forum.
  3. I disagree w. GJ. - in his last comment. Since the first is foreclosing - all junior liens would be wiped out. The minor exception is Federal Tax liens - and, in the 1 in a 1000 chance they would take action, they would have to pay you your money back within 120 days. (plus some interest). Since the first dates back 3-4 years, there wouldn’t be any mechanic liens that would have any effect on the first. (From your description, this wasn’t new construction at the time the first was made.)
  4. You would want to see if there are del. property taxes