In the State of California, it is my understanding that a foreclosure by a senior lien (ie the 1st TD foreclosing) effectively wipes out all junoir liens (ie 2nd TD and / or judgement liens.) This is my experience from four years working in the pre-foreclosure industry. I suggest you verify this with your attorney.
The only time I have seen the 2nd TD get 'a little something' from the 1st TD holder is in a short sale. This type of sale happens pre-foreclosure (i.e. before the actual Trustee sale or auction) and must be agreed to by all lienholders. In this case I am seeing the 1st TD holder offering about 2% to the junior lien holders.
If neither of these scenarios sounds good to you, then you can always cure the default on the 1st and initiate foreclosure proceedings on your loan. Of course, it does not make sense to do this unless there is sufficient value in the property to pay the 1st in full and have something left over for you. With the market decline we have seen over the past 2 years, often the current fair market value of the home is not sufficient to pay the 1st TD in full. In such a case, you might find yourself throwing good money after bad.
I would definitely speak with an attorney, possibly order out an appraisal and then make an informed decision on how to proceed. I hope you that you can at least realize some return on your investment.
Real Estate Consultant
RE/MAX Palos Verdes Realty
The #2 is after #1, Right?
Same as the 2nd loan comes ager the 1st loan. After a home is sold due to the foreclosure, the 1st will be paid 1st. The 2nd could be wiped all or only got paid a few thousands dollars.
But from what I have heard, you might not get a lot. I have heard 80/20 cases where the 2nd is getting $1,000 or $5,000 for a couple hundred thousand dollars of deficiency.
If the deal does not go through and the house is foreclosed by the first, they don't have to pay you anything, from what I understand. I think that's why they think a few thousand is very generous (I understand it's not, but they are doing it that way)