Foreclosure in Seattle>Question Details

Karmafarm, Home Seller in Seattle, WA

My house was auctioned by the second lien holder and someone bought it without knowing of my 1st mtg? Do I still owe the debt or does the new owner?

Asked by Karmafarm, Seattle, WA Wed Jul 6, 2011

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Gerard J. Carney’s answer
You need to consult an attorney, there is reason to believe that you still have full responsibility to the first mortgage and the court may find you, the 2nd mortgage holder and all else in contempt or worse fraud for bypassing a primary Lien holder!
0 votes Thank Flag Link Wed Jul 6, 2011
Thank you all for your answers. I think I get it....consult an Something that I didn't want to do, but seems painfully obvious. However, due to lack of characters in my original post I left out what could be a major detail and am seeking one more "opinion" in the matter. The new buyer was a Broker acting on behalf of her out of state client. I spoke to her personally because we are former collegues and she seemed to reassure herself and me that she not only based her information off of what the title company had provided, but she made sure it was the 1st lien holder foreclosing. Yet my thoughts are this: She received a prelim with obvious disclaimers. Not a title policy which would protect her buyer from this exact problem. The title company legally would have no liability for this because they never issued title insurance, however she did base her decision on the information they provided.

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.
0 votes Thank Flag Link Wed Jul 6, 2011
It just occurred to me that one situation which might pop up down the road is the buyer defaulting on that first loan, perhaps 2-3 years from now. If that happened, it could impact your credit rating at that point. That doesn't mean you would necessarily have to pay the debt, but it could affect your other plans if those involved getting a loan.

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.
0 votes Thank Flag Link Wed Jul 6, 2011
Take Three: Consult an attorney, not a blog. This is not legal advice, and nobody answering this question -- me included -- is your lawyer.

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.
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0 votes Thank Flag Link Wed Jul 6, 2011
Phil got the answer pretty much right, especially the part about consulting an attorney.

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.
0 votes Thank Flag Link Wed Jul 6, 2011
Ahhhhhh! That is a tricky one!
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"
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0 votes Thank Flag Link Wed Jul 6, 2011
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