Now, you might be able to work out a deal to buy it as a short sale. But, you and your brother will have to go through ALL of the same channels that every other short sale buyer and seller are going through right now. And, because there's a second mortgage, you may come to an agreement with the first mortgage, but the second might not agree, which would result in a foreclosure anyway.
Very tricky business, my friend. I suggest you talk to an attorney or talk to an agent that specializes in short sales and foreclosures in your area.
Why not ask your brother to catch up on his payments? If he can't or won't and you are willing to take over the mortgages, why not refinance the whole property (paying off the first and second) into your name and be done with your brother and his inability to pay the mortgage?
There are a million different scenarios that will present themselves as you try to work this out but the reality is that because your brother isn't paying, you need to step in and take over to protect your interest. This really is one of those situations where an attorney's review of the current mortgages, and the contract for deed would be invaluable to you as you move ahead.
Thank you for your help.
The way you bought it, it's all yours.
They have a valid lien and you need to pay them off when the property is sold.
Technically, the loan is due and payable when he transferred the deed because there is a due on sale clause.
Talk to a lawyer - it will be money well spent.