Many homes that are scheduled for auction have 1st and 2nd mortgages that were created on the same day.? For example…someone buys a home at 100% financing with an 80% 1st mortgage and a 20% 2nd mortgage.? If the 1st mortgage forecloses and is purchased at auction, will the 2nd mortgage foreclose out?
The 2nd mortgages secured interest in the property is wiped out when the 1st forecloses. They would still be entitled to any excess proceeds from the sale, and they may still be able to pursue collection of the debt from the homeowner.
How long do they have to pursue a deficiency judgement or pursue the debt?? I was told 4 months by someone, and 2 years by another (for CA).
Essentially forever as long as they make attempts to collect every so often. Keep in mind that in CA, an actual “deficiency judgement” is less likely than the 2nd simply not foreclosing and continuing to collect on the loan. Many folks get confused by the idea that the 2nd is “wiped out” when the 1st forecloses. In reality it is only the 2nd’s secured interest in the property that is wiped out. The loan itself continues on and the borrower continues to be obligated to its terms of repayment. Bankruptcy is likely the only solution at that point. This is why you see me advocate for short sales so strongly. It gives you the opportunity to negotiate terms with the 2nd and eliminate the debt completely. It now appears that some are getting loan modifications completed with the 2nd being paid off for between $1000 and 10% of the loan, and a reduction in the balance of the principal on the 1st. Bottom line, seek help and try alternatives before letting the 1st foreclose.
Sean - You missed one important point!! I’m sure when you re-read your answer you’ll realize what it was. OK - On purchase money loans in Ca. and many other states, there is NO DEFICIENCY judgment allowed. So, when proceeds from that 2nd went towards the purchase of the property, along w. the first lender’s proceeds - that’s a purchase money loan. Only recourse to collect is against the property.
I forgot to add that I believe short sales are a complete waste of time. The owner is better off, financially, waiting for the lender to foreclose. He’ll get free rent for months, up to a year or more while the lender takes its time. Just my opinion.