If I win the bid for a 2nd positon loan, does the 1st loan get wiped out?

Submitted by Tseng from CA - 01/02/2012 - 11:34pm

I am interested in buying a home being foreclosed with a 2nd loan position. So I win the bid, does the 1st loan get wiped out completely or does it become a lien that needs to be paid off by the new owner (me)?

Any advice would be greatly appreciated.

Thank you!

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Comments

Submitted by idannyb - 01/03/2012 - 1:18pm

If you win the bid at a trustee sale for a 2nd position loan (or 3rd of 4th for that matter), then you would be obligated (and should be fully prepared) to pay-off any senior loans/liens. In some cases, a magnanimous lender will allow you to bring the outstanding loan current and continue to make payments, versus requiring a full immediate payoff ... however, that is at the discretion of the lender.

Buying any junior deed of trust (2nd, 3rd, etc.) should be done only after careful calculus of the equity/profit remaining *after* pay-off of all senior debt.

Submitted by Sean - 01/04/2012 - 9:56am

In addition to what Danny said, if you do buy a 2nd you should consider approaching the owner after sale and asking them for the payment book on the first. This gives you a better chance of being able to bring the first current and make payments, rather than having to pay it in full. Its also a win-win for the prior owner as the first will be brought current and then have on-time payments improving their credit, even if only marginally.
But as Danny said, you can't count on this. The senior mortgages will almost certainly have a "due on sale" clause that allows them to refuse payments and require payoff in full. If you don't pay their only option is to foreclose, which if they haven't started the process can take months, perhaps buying you enough time to do a flip. Just make sure you know whether the process has started or not - if it is already scheduled for auction, you could find your ownership wiped out very quickly.

Submitted by Nancy - 05/11/2012 - 3:21pm

I purchased a house by the Trustee sale, a Bank with the 2nd loan foreclosed it. I have been waiting for the Bank with the 1st loan to go after me to get me to pay off the 1st loan but they have not done anything. It has been more than one year. Recently they hired THE MORTGAGE LAW FIRM to foreclose my house, there is additional $10,881 for the Law Firm besides the first loan. I have no way to find the previous owner. What should I do?
Thanks,
Nancy

Submitted by Sean - 05/14/2012 - 11:13pm

To protect your interest, you should pay off the first mortgage before they foreclose.

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