Does a HUD 2nd lien GET wiped OUT if the 1st lien Forecloses ?

[Michael Morrongiello]

ANYONE Experiencing THIS SAME situation -We may see MORE of these moving forward in the Inflactin dirven Bidenomics Paycheck to Paycheck Economy

This property is CA - Estimated ARV $525K to $550K +/-

1st lien was modified several times (TWICE) to TRY to keep the Debtors in their house. They were chroniclaly late and behind on their 5.125% interest rate $363K 1st lien FHA Loan obtained 6-14-2018 which had paid down to around $318K. A FORMAL loan Mod done 9-16-2020 (But NOT recorded until 6-9-2022) reduced their rate to 3.375% to be REAMORTIZED over 360 Months.

Looks like HUD took back a SUBORDINATE 2nd lien in the amount of $101,500 dated 9-16-2020 (Recorded 6-9-2022 at the same time as the Loan MOD was formally recorded)

BUT they fell behind AGAIN so then another Loan Mod was done on 4-14-22 (recorded 7-15-2022) which reduced the Interest Rate lower to 3.125% to be REAMORIZED again over 360 Months.

They fell behind and the 1st lien LENDER filed for NOD and NTS - Notice of Trustee sale and it went to the TRUSTEE SALE X-XX-2023 where the property was SOLD to a Third Party BIDDER for $375,000

I assume under this SCENARIO - the 3rd PARTY bidder who purchased the property at the Trustee Sale Auction 8-23-2023 was buying the property involving the action being BROUGHT to the TRUSTEE SALE AUCTION by the 1st lien DOT lender and that the SUBORDINATE $101,500 2nd lien Held by HUD may have received any (some) OVER BID funds but utilmately was WIPED OUT at the Trustee sale Auction...
Thus their 2nd lien Goes away...

Do not believe that the SUBORDINATE DOT lien to HUD survives the Trustee Sale unless they BID to protect their juinor lien interest.

Thoughts ????

[Tom Gimer]

As I understand it, the lien gets wiped from title but HUD gets paid first due to the mortgage insurance. This is often referred to as a HUD partial claim.

There may be differences here and there with respect to the MI issue but a junior lien is a junior lien and it gets extinguished in a foreclosure regardless of the players involved.