All Forum Posts by: Dan McLaughlin

Wayne, the surplus here in NC is handle by the clerk of court here and like FL, if you feel you have a claim, you submit to the court. I have not had experience with surplus directly because I always buy the senior position, though I was going to buy a second once on a house valued at $800,000 and I could hav epicked it up for 400,000 which was more than owed on both the First and Second. I thought the way you are thinking because, after all, it is logical for the senior to get paid. However after much research, everything, and I mean everything I came across stated that the senior lien is unaffected and therefore will not get anything. I would have been screwed because I would have spent $400k but I would need another $250k to pay off the first. I did not have another $250K available. Thank god the owner declared bankruptcy in that 10 day period. That was one time when the 10-day redemption/upset bid period helped me!

When a foreclosure is under way, it is law that any lien holders affected by the foreclosure be notified. A senior is not affected and therefore, they are not notified of any junior lien foreclosures. So they will never know there is a surplus because they never knew about the foreclosure.

And if things were not complicated enough, in NC we do not require immediate payment. We have to wait for the trustee to get the paper work together, that is a minimum of a few days. Then you have to send the money back to them. That is a few days minimum. Then you have to wait for the trustee's deed to be completed and sent back to you, again a few days. Then you can take it to the registrar and register your deed.

So by the time the first mortgage sale ends, even if you were high bidder on the second mortgage, you will not be the owner of record for that home at the time the first mortgage sale ends.

Not sure how that is taken into consideration either.

Wayne,

The superior lien is unaffected by a junior foreclosure. They do not get any surplus. Surplus trickles to junior lienors then eventually the homeowner. The senior lienor can still foreclose to recoup their money.

Ellis,

you are correct in your assessment with one exception. Both foreclosures sales have already taken place and are in the redemption period. The dates are the last day to make an upset bid not the date they go to sale. If you do make an upset bid, another 10 days is added.

I see it as you do, I think the winner of the 2nd gets and surplus because they are the new homeowner of record (providing the 2nd sale ends before the 1st sale does). However, I just came across a lawsuit in Florida where the bank tried this strategy with their second and the courts said no, they do not get the surplus... but every case is a bit different.

Here is the link to this article:

http://federaltitle.com/blog/who-is-entitled-to-the-surplus-from-mortgage-foreclosure-sales-in-florida

The redemption period is the upset bid period.

A new, higher bid is an upset and resets the 10 days. Once the 10 days are up, that's it. The high bidder gets the property.

The homeowner being foreclosed on, within that 10 day period, can pay in full and the process stops. They can also file bankruptcy which stops the sale. That happens ALL THE TIME! Talk about frustrating.

Yes, this can go on forever. I talked to a clerk of court who accepts bids and she said they had one go on for two years.

Yea, we bid on senior liens and never worry about any junior liens. But on this property, the bidders are not stupid. They are actively bidding on the second which led me to ask the original question.

If they get paid any or all of the surplus from the first, then they are making a brilliant move gauranteeing them the property.

Wayne,

Sorry, let me be more specific with the dates.

Right now, the second mtg foreclosure ends 9/3/13 and the first ends 9/9/13.

So the second is scheduled to end before the first. However that could change! If the bid on the second mtg gets upset on 9/3/13, the new end date will be 9/13/13.

Yes, I know. I can not stand the upset bid period!!! It drives me crazy but it is not changing and we have learned to play the game.

We were actually high bidders in the 10th day and the the second was upset and scheduled to end after us, so we were loving it, then we were upset and that pushed the first back ending after the second again.

This is probably the only time this situation will arise as it is very unique.

My question really is why the hell did the owners not just sell??? Go figure.

Steve,

The second lien holder is now whole thanks to their auction. Opening bid was $218k, the bid is now at $308k.

The first was owed only $27k. That bid is now $355k. So they are now whole as well.

And there is still a ton of equity left.

Those bidders who bid on the second, should at least get there bid back from the surplus of the first lienor's sale. This would be a bid credit should they want to bid on the first, which they are doing. So they can now bid $308k higher than anyone else.

For example, if I bid $500k on the first, by owning the house sub to at $308k, they can bid $808k. Once the surplus funds are distributed, they get their $308k back if not all of the surplus, which would make them a nice little profit in of itself plus clear title since they just won the first lienor's sale.

This is how I am seeing as how it works. Please someone who has some experience chime in!

Wayne, I am 99% sure the senior lien will not see any surplus from a junior foreclosure. Their security and interest in the property is unaffected by a junior lien foreclosure therefore they are not involved in any of the foreclosure process.

Wayne,

Yes that is correct, you are the owner sub to any senior liens

I dont want to stir things up but I dont agree that the original owners get all of the surplus. I want to think that the high bidder of the 2nd lien foreclosure gets at least their bid amount back then maybe the original homeowner gets that surplus.

I was hoping someone on BP has been through this so we can all stop guessing.

Ellis,

That is the way it works here as well.

Since the 2nd is foreclosing as well, the original homeowner will get the surplus since there are no other liens.

However, the 1st foreclosed as well and there will be a surplus too. Since the 2nd has already been made whole with their foreclosure and the surplus went to the original homeowners, who gets the surplus from the first, the original homeowner or the high bidder of the second, who in NC, is now the new homeowner subject to any senior liens.

Joe,

So does the winner of the junior lien get ALL of the surplus from the senior lien foreclosure or only what they paid, and the remainder trickles to the original owner? (In NC when you are high bidder you get title to the property subject to all senior liens and encumbrances, so you are the new owner, for the time being at least)