No. of Recommendations: 3
Hi Footy,

Well, we are still hoping to bid on a foreclosed house at auction in 2 days. We paid a title company to do a preliminary report and they fould that there is a 2nd mortgage for $22,000. And they said this will have to be paid. Sounds like a big chunk of money, but if we allow for that in our bidding, then not so much of problem.

You were told wrong; The 2nd lien is subordinate to the 1st lien, which may both be subordinate to any homeowner's association liens, and superior tax liens.

At the foreclosure auction, whatever the winning bid pays goes to the lien holders in their order of priority, until either all liens are fulfilled, or all funds are exhausted. If the liens are fulfilled before the money runs out, then the remainder balance goes to the foreclosed seller (minus the allowable legal costs of the foreclosure.)

If all the liens are *not* paid off, the unpaid lienholders generally get nada but the kiss of the wind. They're wiped out, and the new owner is provided clean title.

There can be exceptions when proper legal process is not followed, providing outstanding lienholders their chance to collect the funds available to their place in line... but these are the rare exceptions.

Maybe you guys will know if this amoutn can be negotiated down with the bank?? Thanks.
The answer is *yes*... but again, see above, you do *NOT* have to be concerned with paying off a 2nd lien if you are buying at the point of the foreclosure auction.

OTOH, if you are hoping to negotiate a better pre-auction (short-sale) deal, then the 2nd lien holders are currently accepting $3-5,000 to go away (if you are negotiating a short-sale with the underlying 1st in front of the 2nd lien.)

Dave Donhoff
Leverage Planner
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