Yes it happens....not as often anymore as in the past go go days of lending.
If it has gone this far, probably the borrower is no longer paying, the house will go into foreclosure, the bank or investor will recover the property and it will be resolve with no prior liens.
It's happened all over the country, but it can be resolved and is resolved every day. That's the envirnoment we are in currently.
If you want to buy a house, work through a realtor and a title company to resolve these issues.