what happens to the 2nd at Auction

what happens to the 2nd if you buy a property at auction

I would be representing the Buyer. Could the 2nd go after them for the remaing amount of the 2nd is they bough at auction?

If you purchased a property at trustee sale and you purchased the 1st lien position then the 2nd is wiped out. All junior liens and loans would be wiped out at trustee sale. You would want to verify the lien position through research and you would want to check for any delinquent property taxes since they are always super senior to any lien.

What Michelle said…

Your question is a bit unclear. I will assume you mean that if you bid on the 1st mtg lien foreclosure, what happens to the unpaid 2nd loan amounts? Not trying to be picky, but in this business it pays to be very clear on EXACTLY what you mean. “Mis-describing” things can cost $$$ and details are very important.

So, like Michelle said, the 2nd is wiped out if you are truly bidding on the 1st mtg. Now there is a distinction of liens being “wiped out”. The junior lien is wiped off TITLE but the debt does NOT go POOF. The debt is still out there, it is now just UNsecured debt aka “lien stripping”.

What this means is that the former owner who incurred the debt may have an issue down the road when they get a call from a collection agency trying to collect. Yes, even foreclosures in NON-recourse states such as CA. If the debt is anything other than purchase money debt, that debt is still valid and can be pursued even after a foreclosure sale. Many people seem to think if they “just let it go to foreclosure” all is forgiven. Not exactly. Some of that debt may come back to haunt. It seems more and more that these wiped junior liens are being traded and collected upon. It will be a bigger and bigger issue over the next several years (with heightened media attention) I suspect.

But that is the former owner’s problem. If you are the one purchasing at trustee sale, then the junior debt does go POOF! for all intents and purposes.

Also keep in mind that even though people equate “foreclosure” with “lender mtg default”, they are not always one in the same. Foreclosures can be of ANY lien. So when we speak of “foreclosure” it’s helpful to specifically ID what kind: tax, HOA, bank “foreclosure”, etc.