Junior Lien Issue On My Foreclosure Purchase...

[Dustin DuFault]

Hello - I'm hoping someone on BP can point me in the right direction.

I bought and rehabbed a home at a foreclosure auction. I now have the home under contract for sale, but it appears I overlooked an issue with a junior lien on the property. I'm looking for advice on how best to proceed! 

Here is the situation...

The home had two liens against it - the original mortgage, and a line of credit. Both liens were held by the same mortgagee.

Lis Pendens were filed on both liens within a couple of months of one another. The senior lien then reached judgment, and went to auction, where I bid on the home and won. I assumed (incorrectly, of course, I'm a foreclosure newbie), that since the bank on each lien was the same, and that I was bidding on the action on the senior lien, that the junior lien would be resolved automatically.

My title agent is stating that since the mortgage company did not name themselves as a defendant on the senior lien lawsuit, that their junior lien is still outstanding and must be resolved before we can sell the house. So that’s the question - how best to proceed???

I think I have two options - I can contact the lender and see if they are willing to give me a lien release. The other option would be to file a lawsuit, which would take time and money, obviously. If I do this, would it be considered a quiet title action, an additional foreclosure, or what? Also, does anyone have tips on reaching the right person / group at the bank to discuss this? It's a regional institution.

Thanks for your help!

[Wayne Brooks]

Hey @Chad U. .  Yes, even though the same lender held both mortgages, they as the junior mortgagee would have to be listed as an additional defendant.  There really is no basis for a suit against the lender, the first or the second.  You are now the title holder, not a lien holder.  Some will suggest a Quiet Title suit, but that has no merit here, and could only serve to possibly, just possibly, get the 2nd mtg holder to the negotiating table, or so that's the theory of some.  I have seen instances where one lender holds the first and second on a property, and forecloses on the second, but not the first.  I wonder if that's intentional...hoping for some bidder's confusion or ignorance....or just happenstance.

Trying to negotiate out the second seems the best approach.  On this occasion, I would probably actually recommend having your RE attorney do it.  He can speak legalese, rattle some sabers, etc. in regard to proper foreclosure procedures, yadda yadda yadda.  Hopefully the foreclosure file contains the actual loan number which will help in identifying the specific loan.