2nd lien bank foreclosure - excess funds go to 1st lien?

[Sean Stewart]

Scenario: 2nd lien bank foreclosure auction ~ $50k judgement/fee/interests.  Winning Bid at auction $100k.  1st lien owed $150k (not in foreclosure yet)

My question: Does any winning bid over the 2nd lien credit bid automatically apply/pay toward the 1st lien creditor?  Meaning, does that 1st lien lender (so not technically a subordinate lien) receive the additional $50k at the closing, essentially reducing their position to $50k?

Put another way, where does the $50k over the 2nd lien go?

[Wayne Brooks]

Quote from @Jy Kasnett:

I dont see why the surplus bypasses the 1st lienholder?? They have a LIEN on the property meaning if it sells in any way shape or form they must benefit up until the debt owed to them...how would it possibly go to the 2nd lien holder or even the former owner in this case?

Because that’s the way the law works.  This is Not an ordinary sale, where of course the first lien gets paid in full.  This is a court ordered enforcement of a second mtg…that second mtg holder gets paid, up to the amount of their lien.  The reason why the first lien holder does Not get paid, is because any lien holders junior to the foreclosing lien get wiped out, so they get paid from any proceeds.  If there are no junior liens, the owner gets the surplus.  The legal theory is that the first lien still has their lien and is not prejudiced by junior lien foreclosure.