Second Mortgage Forclosure

[Stephen Gentry]

Hello all,

I'm planning on bidding on a property at a foreclosure auction that has a primary mortgage of $216k and a second mortgage of $36k. I've seen mixed opinions about how the proceeds will be distributed and how the liens will be handled. I have two questions:

1. If this foreclosure is indeed from the second mortgage, does possession of the property first need to be passed to the first possession lienholder before it can be auctioned?, or...

2. If the second mortgage lienholder is the one that foreclosed, does that mean by winning the auction I will be inheriting the first mortgage along with the deed to the property?

I'm in Kern County, CA and I've determined my max bid to be around the $150k mark. As far as I understand if the first position mortgage is the one that foreclosed, the second will be wiped upon sale, but if the second foreclosed, I'm not sure how this will play out. Called about doing a title search, but they wanted $500-$700 at my local title offices which seems really high compared to what I've read in books and online. If anyone has experience with this type of situation your thoughts and insight would be most appreciated. Thank you.

[Chad U.]

1. "If this foreclosure is indeed from the second mortgage, does possession of the property first need to be passed to the first possession lienholder before it can be auctioned?, or... ". 

No, the second mortgage will foreclose and the first lien remains intact.  Be careful as the first lien balance could be substantially higher if they have not kept up their payments.

2. "If the second mortgage lienholder is the one that foreclosed, does that mean by winning the auction I will be inheriting the first mortgage along with the deed to the property?"

You take title to the property subject to the 1st lien mortgage, which means they could foreclose you out.  However the first lien holder is legally obligated to provide you a payoff.