Why foreclose on the second? - Posted by Lin

Posted by Kawika Ohumukini on January 08, 2004 at 18:14:05:

I’m not an expert but it’s probably because at foreclosure the minimum bid will be 1st + 2nd.

Had the credit union only had the 1st they could only foreclose on the 1st and the winning bid could be as low as 1st + $1.

If the winning bid was less than 1st + 2nd, the amount short the full 2nd amount must be collected by a lien against the owner personally and no longer against the property so the holder of the 2nd kinda gets the shaft.

Since the credit union has both 1st and 2nd, probably wasn’t a good idea to do it that way, they want maximum money so they’ll foreclose the 2nd automatically raising the minimum bid to 1st + 2nd.

Why foreclose on the second? - Posted by Lin

Posted by Lin on January 08, 2004 at 17:08:28:

Situation: Borrower in default on first and second mortgage. Both first (bal. $126k) and second (bal. $24k)mortgages are with the same credit union. Lender chooses to foreclose on the second and not the first.

Why would they be foreclosing on the second and not the first?


Re: Why foreclose on the second? - Posted by Bill H

Posted by Bill H on January 08, 2004 at 18:53:55:

The answer is relatively simple.

  1. Forelosure on the second insures that the sale keeps the first in place and whomever purchases at the sale does so subject to the first. SO; if the 2nd forecloses for 24K and the bid is 24K, the lender has lost nothing…the first is still in effect for 126K.

  2. NOW; if the lender forecloses on the first for 126K then at the sale the bid is only for 126K they have lost their second position for 24K and in other words have “Shot themselves in the foot.”

  3. Liens have a First in Order of Recording Preference and the senior liens always (with some exceptions) wipe clean the junior liens at foreclosure sales.

Good Luck,
Bill H

Re: Why foreclose on the second? - Posted by Dennie

Posted by Dennie on January 08, 2004 at 18:26:08:

I suggest that you go to a foreclosure sale in your state when a second is sold and see what happens. In my state, the minimum bid only covers the 2nd, not the first. Whoever wins the bid gets a trustee deed to the house. No need to foreclose on the first to have it deeded to you. If someone other than the credit union gets the house, they will own it subject to the first. If they foreclosed on the first,the second would be wiped off with no recourse against the property.