Foreclosure 2nd Mortgage

Question:
My home was foreclosed two months ago. I assume that the first mortgage will be paid off at the foreclosure auction. We owed considerably less than the house was worth. How is the second mortgage handled. They do not even appear to know that it was foreclosed on, gauging by the letters and calls we are still receiving from them. How will they pursue getting the money owed to them, since the first mortgage got the house and resold it to someone else at the foreclosure auction? We owed $75,000 on the second mortgage. Are there laws about whether they can still sue us for the $75,000? Are they just out of luck? We have not filed bankruptcy yet. If the second mortgage did sue us, we would have to file. Would bankruptcy handle that debt?

Answer:
The answer depends on which state you live in. Here in MD and DC, for example, the 2nd mortgage lender would obtain a judgment against you for its loss, which it could enforce through garnishment and attachment. If you don't mind, let me try to understand by filling in some blanks. I believe you are saying that the holder of the first mortgage foreclosed on its note. If that is true then the security interest of the holder of the second mortgage would be wiped out, but they would be entitled to the balance of the proceeds of the foreclosure sale over and above the balance of the first mortgage up to the amount they were owed. Although the holder of the second mortgage would no longer have a valid security interest in the house, they would still be owed the balance on the mortgage and could (and probably would) sue you for that amount. I am surprised the holder of the second mortgage is unaware of the foreclosure. They should have received notice of the sale so they could protect their interest. Was their mortgage recorded? Finally, it is not true that the first mortgage was necessarily "paid off" by the foreclosure. Whatever was bid at the sale would have been paid to the holder of the first mortgage. That is not necessarily the same amount as the mortgage and costs. Although it usually is if the value of the house exceeds the mortgage. The holder of the first mortgage can "bid in" the amount owed them and take title to the house if they beleive it can be resold for a quick profit. Your state may have procedures for filing a report of the foreclosure and the disposition of the proceeds. I know Virginia does and the trustee who does the foreclosure must accont for all of the proceeds of the sale. Bankruptcy would discharge the debt owed the holder of the second mortgage.





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