Hypothetical Pennsylvania
if I were to purchase for 150K at auction a house that was foreclosed on by the first mortgagor for 100K. however, unknown to me there is a 2nd mortgage for 50K. do I owe the 2nd mortgagor the 50K or does that stay with the 2nd mortgagee? your help is very much appreciated as I cannot seem to get any clear answer on this when talking to banks, realtors etc.
Great question to ask before you make a purchase!
If the first is the foreclosing lender the 2nd will have to protect their interest at the sale.
If your bid were 150k or even 100k you would not be responsible for the 2nd mortgages.
Since your bid was 150k and the 1st is 100k normally the difference would be distributed to other mortgage holders and liens and sometimes the original homeowner depending on the equity position.
[addsig]
When purchasing at auction you should run a title search beforehand.
1. All liens senior to the one foreclosing will stay with the property and will need to be satisfied before you have clear title.
2. All liens junior to the one foreclosing will be extengiushed ONLY IF proper notice was given. You should check to make sure that the junior lien was named party to the foreclosure lawsuit. If the junior lien was never given notice that his lien will be extenguished, then it will not be.
That being covered, if you purchase a property that the 1st is foreclosing on for $150k and the 1st is only owed $100k, the 50k will go to all junior liens in order of priority and then finally to the homeowner.
Example:
You pay $150k, 2nd mortgage of 30k, no other liens.
Out of your 150k the 1st gets $100k, the 2nd $30k, and the previous homeowner $20k
Now if the 2nd mortgage was $80k, the 1st gets $100k, the 2nd gets $50k, and the previous homeowner gets nothing. The 2nd mortgage must typically eat that $30k. This is one of the risks of being in 2nd position.
GOOD LUCK