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Francis, Home Buyer in Buffalo, NY

Are second mortgages wiped out at auction?

Asked by Francis, Buffalo, NY Sat Apr 12, 2008

I'm looking at a propety with both a first and second mortgage which is about to go to auction due to foreclosure on the first mortgage. If the holder (bank) for the second mortgage chooses not to bid at the auction, and the house becomes an REO controlled by the holder of the first mortgage, is the second mortgage 'wiped-out', or is that bank still likely to have a lien on the subsequent REO? Thanks.

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Francis, It all depends on the numbers, when a first lien holder forecloses they are exercising their right to the collateral and will of course liquidate that property to become whole (or as close as possible). If the second lein holder believes there will be money left they will generally foreclose as well to preserve their right to any remaining equity. I'n most cases with the market being what it is the second is left out of the money. What most people don't realize is that one reason a second mortgage rate is higher is because the bank has (In most cases) bought MI on the the note. The MI company will pay off and MAY possibly try to collect from the previous owner. Having said all that I'm not sure if you're asking the right question. If what you want to know is will you receive a "clear title" with no liens the answer is yes, although it is extremely important to have a title policy issued stating they are insuring title without standard exceptions. If your giving a mortgage to a new (your) lender, you can be sure they will not allow another lien on the property without full disclosure. If you are purchasing a home for cash either your buyers agent or your attorney should review the title commitment.
0 votes Thank Flag Link Sat Apr 12, 2008
Seconds, thirds and all junior liens are wiped out at trustees sales. Just make sure the lien you are bidding on at auction was recorded prior to all other liens on the property; a county records search or confirmation with a title company is mandatory before you do any bidding.
0 votes Thank Flag Link Sat Apr 12, 2008
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