What happens to a second mortgage when a home is purchased at a foreclosure auction?
October 10, 2008 - I am going to bid on a house at foreclosure and it has a 1st mortgage of $280K and a second of $70K. The lender on the first two mortgages is Decision One Mortgage. The lender at foreclosure is Countrywide. Does this mean that if I buy this house at foreclosure that I will own additional money to the second mortgage or just the first mortgage and back taxes?
- The answer may be here.
- BTW, there's a redemption period where the original owners can pay back what's owed and reclaim the house - can be anywhere from 6 months to 1 year - so don't be quick to dump money and updates into that house.
When a senior lien forecloses, a junior lien is wiped out. So if the first mortgage holder forecloses, the second trust deed goes away. If the second forecloses, you'll still owe the first. Oftentimes, if a senior lien forecloses, the junior lien holder will send a representative to the auction to defend its interests by making sure the property goes for enough to pay the junior lien as well. Or they buy it themselves with the idea of reselling. Costs money, yes. But better than losing their whole investment.
- If Countrywide is currently the 3rd mortgage and you buy it at their foreclosure sale you will be responsible for the 1st and 2nd mortages plus taxes.
Lets see if I get this right with my mystical magic 8 ball. You're buying a foreclosed house from the 3rd mortgage spot. Here's the only reason why you will buy the house from the 3rd position, the house is worth more than the 1st and 2nd mortgage and the 3rd mortgage together. I'll give some numbers to make it work or not work. Lets say the house is worth approximately $425,000. The 3rd mortgage is $10,000 and they are foreclosing. You can pick up the 3rd mortgage for say $5,000. This mean for you to own the house full and clear, at the time of the foreclosure sale you'll need $355,000 in cash. (technically $70,000 in equity). So the answer to your question is yes, if you buy this foreclosure, you'll need to pay the first and second mortgage off plus taxes.
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