2nd mortgage forclosure

[John C]

A property with two mortgages is coming up for sheriff sale. The second mortgage, which is a construction loan (and twice the amount of the first) is foreclosing on the property. I was under the assumption that the first usually forecloses. However, this is the second.

I’ve read many of the previous posts and they all seem to arrive at the same conclusion that the first in time is the first in line. Which makes perfect sense, however there a number of things that contradict this idea. Two of the biggest are the listing of the property in the daily paper and the information provided to me by my RE attorney.

while looking through the paper I noticed the property was NOT "subject to mortgage". Legal definition for "subject to mortgage" as the Philadelphia sheriff's office has it is:

The property is NOT being sold as a result of the first mortgage, but as a result of delinquency on a subsequent mortgage. Successful bidders will not only be responsible for their bid price, but for all mortgages preceding the mortgage of the lender who foreclosed on the property.

Also, the conversation I had with my RE attorney basically suggested that I wouldn’t be subject to mortgage either. His point was that even though the 2nd is foreclosing, it would not receive any funds until the 1st was paid off.

Not sure which information I should rely on. My gut tells me to follow the official paper and the RE attorney. But then I wonder why some many have contradictory statements on this site. Please help me to make sense of this situation as I don’t have much time left.

Lastly, the 2nd bank filed a UCC (uniform commercial code) financial statement obtaining rights to the property. I’m not sure if this changes the superiority of the liens, sort of like a subordinate agreement, making the 2nd first in line. Or perhaps the first was satisfied but never recorded.

I thank you in advance for your help.

[Jon Holdman]

The first paragraph here explains it completely. "Successful bidders will not only be responsible for their bid price, but for all mortgages preceding the mortgage of the lender who foreclosed on the property."

If you win this auction, you will pay the winning bid amount. You will get possession of the property. You will also get any superior claims. In this case, that includes AT LEAST the first mortgage. It may well include other mortgages superior to the one that's foreclosing as well as any tax liens or other liens that are superior to the one that's foreclosing.

If you're looking for some way that you will win this auction and not be responsible for the first mortgage, then I don't think you have much hope. Its may not be "subject to" in the usual sense investor use the term "subject to". But this foreclosure has no effect on the ability of the first to make a claim against the property. If you win, and you don't make the payments on the first or pay the first off, the first can foreclose and still take the property.