I have read about several instances where people have bought a home on the steps, believing that they were buying the 1st loan, then later find out that they bought the 2nd loan and now owe the 1st.
How does one come to believe that the 1st is foreclosing when it is indeed the 2nd and how does one avoid such a situation?
I have recently heard this happening to newbie auction investors that were guided by someone that represented themselves as an authority but clearly did not know what he was doing and it cost them dearly.
In another case a seasoned investor accidentally bid on the 2nd. Both loans were with the same lender and he simply made a mistake. The key is to remember that you are bidding on a lien position not on a property.
When you look at a Notice of Default or Notice of Trustee Sale is must reference the foreclosing loan by the county recorders number. This is how you verify which loan is foreclosing. Once you determine which loan is foreclosing then you want to review the transaction history on the property (or chain of title) and check for reconveyances of any loans that are dated prior to the loan in foreclosure to make sure there are not any senior loans still outstanding You always want to check for past due property taxes which are super senior to all loans and run with the property as well as any IRS liens that could cause a delay in reselling the property due to the 120 day redemption period. Even those that are experienced invesotrs can make mistakes but the key is to reduce the risk through research.