What happen if I buy an auctioned house that the loan is in 2nd position?


#1

I’m learning the rope here. What if I see a house that on auction and it priced well, but the house has 2 loan. The date for the auction come first for the second loan (the first loan also has a scheduled auction date, but a couple of month later than the position 2 loan)?

And the house is still occupied and the owner is recently putting it up for sale?

What is most likely happened with the scheduled auction (for the 2nd loan) if they postponed the auction for only 1 week.

Thank you for your help.


#2

You ONLY want to bid at sales under the first lien. You would need years of experience before even considering buying under a 2nd to understand all the risks.
My guess would be that the owner owes much more than the home is worth.


#3

Thanks for your advice. I’m reading other threads and started to realize how risky it is when you are dealing with this type of transaction.


#4

Hi ONN, If you buy a 2nd you are responsible for any senior liens or loans. If you were to buy a second you would want to cure the 1st or if the 1st goes to trustee sale then you (based on the purchase of your 2nd lien position) would be wiped out. Researching the title is a VERY important part of buying at trustee sale. We have a great video on this at http://www.foreclosuretruth.com/blog/sean/video-foreclosure-auction-guide/?


#5

I have a question regarding a home was bought in the third lien position and then later the first lien forecloses. Do you know what happens to credit scores of the two different owners?
This is in California.

Owner AAA buys a home and takes out three mortgages (deed #1, deed #2, deed #3).
Deed #3 decides to foreclose on the home.
Owner XXX buys it not knowing there was a senior deed #1 and #2. She did not know the previous owners. Owner XXX has a deed in her name which we will call deed #4
Owner XXX receives a foreclosure notice from Deed #1.
Deed #1 forecloses on the property. All junior liens are wiped out.
Owner XXX keeps making the mortgage payments to deed #4 so she does not default on this deed that is in her name while the matter is being legally worked out. She hopes her lender will not demand the remaining balance immediately.
Even though owner XXX was not on the deed #1 which was just foreclosed upon, will her credit score be negatively affected because she was the owner at the time of the foreclosure? Or does the credit damage by a foreclosure only follows the name whose deed was foreclosed upon.

I am not clear as to what happens in this scenario when the owner XXX with the current title of the home is a different person than the deed that is foreclosed upon in California.


#6

I would assume the new owner didn’t go thru a qualifying process and formally assume the lst loan. That being the case - the first lender would not, nor could they, report the new owner to a credit bureau. You need SS numbers and other info. Besides, she never signed on the loan so she was never under any obligation to pay it.


#7

Thanks I didn’t know that. I thought maybe just because the new owner XXX is on the title, when a foreclosure happens they would somehow link her and show a derogatory mark on her credit automatically. I didn’t know the first lender actually has to proactively report the new owner to the credit bureau.


#8

Always buy the 1st loan position. Do not mess around with properties that have more than one loan only! We sold some NPN that banks wanted to sell and we always sell and buy the 1st loan.Make sure you have enough oxygen to fight in court and gets no return on your money up to one year! Making big money on NPN is no walk in the park. I will prefer buying a bank REO and get a free and clear title if you don`t know what are you doing and or have experience Yes you pay more but it always the way to go and sleep good at night.