I just completed a loan modification with a servicer SPS that held both mortgages on the property. In addition to lowering the rate substantially on the 1st mortgage they took a $3,000 payoff to eliminate an $80,000 2nd, thereby wiping out $77,000 on the 2nd mortgage.
In short sales typically the lender on a 2nd will take a huge haircut on their principal balance. In most cases the 2nd lien holder walks away with only pennies on a dollar, which is better than the alternative of foreclosure that wipes out their interest completely.
I have NEVER seen a 2nd lender on a property that is underwater pay off the 1st mortgage for the privelege of losing their investment in the 2nd lien.
I believe that's called throwing good money after bad.
Buyer's Agent REALTOR