My neighbor who was present at the auction stated the auctioneer tried to warn her that this was the 2nd mortgage and not the 1st lien holder and the buyer/broker made a call during the auction. Whether it was to the title company or her real estate partner, whoever was on the other end of the phone reassured her enough to disregard the auctioneers warning and she proceeded with the purchase. My house has an assessed value of close to $300k and she didn't think it was too good to be true that she was getting the home for $47k. The assessed land alone is 4 times that. The question is...does the new buyer have recourse by backing out of the purchase assuming her got a property for $47k but assuming my first mortgage of $147k? And will the title company step up considering she was basing her info off of their prelim (which I haven't seen myself and find it hard to believe they would miss it), or if her errors and emissions covers this then who gets the property and the debt? Just looking for opinions not legal advice. I'm a former Realtor and Limited Practice Officer who has never dealt with foreclosures for this exact reason. I prefer Statutory Warranty Deeds as opposed to Special Warranty Deeds. When I was in the biz...foreclosures were discouraged by the agents. I know times have changed, but this is a fine mess she is in. She told me that the 1st mortgage foreclosed, but I was the one who called the Trustee and found out otherwise and havent heard from her since. I apologize for the lack of paragraphs but it isn't letting me hit return for some reason.
Another situation would be if the property were destroyed by an earthquake. There your liability on the note might more likely be an issue (assuming no insurance).
I'm sure there are other possible situations where you might be affected, which is another reason to consult with an attorney.
Congrats, you got a lucky break. The new owner will either have to pay the debt in full, or the lender will foreclose (the security interest of the first, a senior lien, survived foreclosure of the second, a junior lien). Either way, the debt is resolved (foreclosure extinguishes the debt being foreclosed, or the debt is paid by the new owner to avoid foreclosure) without payment by you. I am unaware of any claim that could be asserted by the new owner against you for reimbursement of the funds used to pay the senior lien.
I would expect these events to occur in the next year or two at the most. Monitor the situation to confirm you are off the hook.
I'm not really sure of any basis for the buyer of the property to come after you for their mistake, but the bank clearly could. Your biggest risk there is probably that the might walk away because the buy wasn't the screaming deal they thought it was. If that happened though, one possible outcome would be that the first would foreclose non-judicially, letting you off the hook.
I'd heard of this happening years ago through a client, who like you was the person being foreclosed. Back then seconds foreclosing was rather common, so not knowing it was a second foreclosing was extremely foolish, as opposed to today where it's merely very foolish. Recently I haven't seen many seconds take any foreclosure action, but did note one doing so earlier this week, so it does happen as your case indicates. That's a very good situation for the owner because it means they most likely will no longer owe money on the second, and like you there's some chance they also won't have to pay the first.
Again though I would recommend you talk to an attorney about this, in part just so that if/when something does happen you have someone up to speed with the facts. Neither Phil nor I are giving you legal advice because for one thing that would be impossible to do based on two short sentences. One other issue to address with the attorney is the tax consequences of the sale.
The new owner has an asset that will be foreclosed on if they do not catch up the payments and make them from now until it is paid off in full. Sucks to be them! That is why a person has to do due diligence when buying at the foreclosure auction. They thought they got a screaming hot deal, and may have wondered why no one else was bidding!!
HOWEVER, the bank holding the note could potentially try to go after you because you signed a note with them saying you would pay the loan. Since they did not foreclose on the property, they could try to make a case that you are still responsible. I would consult an attorney, if I were you.
Assuming you are in financial straights right now, they would probably wait. But when you get on your feet financially, you do not want a call from a bankers attorney saying, "Do you remember that Promissory Note you signed way back in 2006? Now it is time to pay it in full"