"Subject to" question regarding NPN's

[Joshua Andrews]

I'm a little confused about the term "subject to" when it comes to non performing 2nd mortgage workouts.

I've been learning about various workout scenarios possible with non performing 2nd mortgage's and I see you can indeed forclose on the borrower from the 2nd position, subject to the 1st mortgagage. I googled what subject to means and here's what Wikipedia has to say:

"A second lien holder can foreclose when a homeowner stops making payments to the second mortgage holder, even if there is no equity in the house. The second lien holder can foreclose even if the homeowner is making payments to their first mortgage holder. When a second lien holder forecloses, they do so subject to the first lien. The second lien holder may purchase the primary (first lien) mortgage (which may still be in good standing), but they are not required to do so. Regardless, if the second mortgage holder forecloses, this will result in the homeowner losing their home to foreclosure."

MY QUESTIONS:

1. If the property in question has zero equity or is actually underwater, and I initiate and follow through with a foreclosure from the 2nd position, what are my responsibilities to the 1st mortgage?

2. I'm assuming the 1st gets paid first and in a zero equity situation the 2nd nets nothing?

3. My actual costs would be whatever I purchased the note for, and any legal fees involved in the foreclosure, but I would not be obligated to buy or satisfy the 1st mortgage from anything other than the sale of the property correct?

If I understand this correctly, this seems a tool to get LEVERAGE on folks who are unwilling to do a workout on the delinquent 2nd. If they don't work something out, the 2nd can foreclose and the trustee sale will pay the 1st mortgage off first. Then if there is anything left the 2nd gets paid. So in essence I as an investor may lose the money I put into buying the 2nd and all accompanied legal fees, but the owner lost the home.

This would seem to be the case but I may be mistaken.

Would appreciate some clarification from more seasoned investors.

Thanks!

Josh