How does foreclosure work in second position?

[James Free]

Google the foreclosure implications of being a debt-holder in second position, and you'll find a bunch of articles explaining that if the house sells for less than what is owed, the person in second position gets screwed. What I want to know is, what happens if the house sells for MORE than is owed, and there are two debt-holders.

Suppose there's a first mortgage balance of $100k and a second mortgage balance of $30k, and the house sells in foreclosure for $180k. How is that $180k distributed?

[Adam Walter]

@James Free  With anything in the foreclosure space, everything is state specific.  I can tell you how they handle it in Ohio (note: I am not an attorney but I watch a lot of law and order).   As a lien holder, you will be served a notice of the foreclosure which you have to answer to get a place in line.  So you answer, and you tell them how much is owed, you should receive a place in line when they distribute the proceeds.  In most cases, the order of the payout is:  1) court costs  2) real estate taxes due or any real estate tax liens sold  3) 1st lien position (usually first mortgage), 4) anyone else who answered the foreclosure filing who has a superior lien position 5) any additional funds go back to the clerk or courts for further instructions to which the homeowner can get the excess funds.  You'd be surprised how many times there are excess funds especially with estates.  

I was the president of a Condo Association where there was an investor who owed money to the COA and lost 10-12 properties though foreclosures.  We answered every filing and finally we got lucky and got paid on one of them.  

Also, I am following a foreclosure in Ohio where the 2nd mortgage holder is filing foreclosure and the first mortgage answered (keep in mind if the 1st mortgage holder doesn't answer then you move up in the distribution list).   Instead of the 1st taking the proceeds from the foreclosure they have to option for the foreclosure to proceed subject to their mortgage.  So the property sells and the mortgage stays in place.   I'm looking to bid on it, because I'd love to get a nice rental property with 30 yr fixed rate mortgage already on it.