What happens when 2nd forecloses?

[Shawn Ho]

Hi,

What happens when the 2nd foreclose and no one bids? And why would a second try to foreclose? Thanks!

[Ryan Webber]

The second lien holder takes possession of the property subject to the first lien. If they want to the first lien holder can legally foreclose at that point via the Due On Sale Clause, which states that if title is transferred the lienholder can accelerate the note and foreclose.

[Shawn Ho]

You mentioned that the first can foreclose. And if that happens, does the mean the second have to bid at the auction or they lose everything? Thanks!

[N/A N/A]

Originally posted by "Ryan Webber":

If they want to the first lien holder can legally foreclose at that point via the Due On Sale Clause,

Foreclose or call the loan due? I only ask because I assume the second lien holder would have time to pay off that loan (which, I'm guessing, might have been their intent behind foreclosing on the second in the first place).

[Shawn Ho]

Sample scenario: 1st is $400,000 and 2nd is $100,000.

If the 1st files foreclosure, will the 2nd lose everything? Is the only option for the 2nd to bid at the auction?

If the 2nd files foreclosure first, no one bids and they have possesion of the property, what happens next?

Sorry for being so dumb. Thank you very much for your help!

[Ryan Webber]

Well calling the loan due (accelerating the note) is the step right before you foreclose. Now you would most likely be able to pay off the first before the foreclosure since most foreclosure proceedings take a month or two.

If the first lien forecloses then all junior liens (second and third) are gone.

[Shawn Ho]

Thanks Ryan!