Help - Simultaneous Foreclosure -1st and 2nd Liens - Posted by Tyler

Posted by Natalie-VA on July 17, 2007 at 06:17:15:


I have to apologize. I got my facts wrong on my sale. The auction I won WAS for the 1st DOT, so there’s no way it could have been extinguished by the previous sale. Sorry about that. RE’s been slow this year. I’ve been spending too much time in the sun and it must have gone to my head. :slight_smile:

I stand by my other statements though. In my area, there are no lis pendens, etc. There would be no way for an attorney (trustee) to know if a FC sale had already taken place and just not settled yet. Nothing is normally recorded into record until settlement occurs and the trustee’s deed is recorded.


Help - Simultaneous Foreclosure -1st and 2nd Liens - Posted by Tyler

Posted by Tyler on July 13, 2007 at 17:48:03:

Here’s the situation:

Homeowner has a 1st Deed of Trust and a 2nd Deed of Trust, both of which are in default and barring any last minute stays, will be sold at auction in a couple of weeks. Both DOTS are being foreclosed on the same day at the same location. It seems to me that the best case would be that the 1st DOT comes up for bid first, in which case (as I understand it), the 2nd DOT could very well be blown out without consideration unless the highest bid can partially or wholly satisfy the 1st and 2nd. I can’t see them offering the 2nd DOT first, as nobody would bother to bid on it knowing they really want the 1st. Typically, how do they handle this type of situation where both DOTs are being foreclosed?

I’m interested in going after this property, but it will be the first time I’ve purchased at auction. I’ve been a spectator and followed properties in the past to get comfortable with the process though. I would really appreciate any advice as to what my plan of action should be the day of the auction in order to at least be in the running for this property. Thank you in advance.

Simultaneous Foreclosure -1st and 2nd Liens - Posted by Natalie-VA

Posted by Natalie-VA on July 14, 2007 at 15:53:32:

I wonder if both DOTs are the same lender?

This could give them some flexibility. If they don’t mind getting the house, they keep bidding until both positions are covered. If they don’t want the house, maybe they just foreclose on the 1st and let the 2nd go. They probably scheduled both sales just in case they have to cancel one for some reason. Then they’ll still have the other to fall back on.

Now, what will you do if they open up bidding on the 1st, you win the bid, give your deposit and sign your contract. Ten minutes later, they open up bidding on the 2nd. What will you do? Buyer beware.


Re: Help - Simultaneous Foreclosure -1st and 2nd - Posted by BTI

Posted by BTI on July 14, 2007 at 08:37:48:


Like JT said, knowing the state and county will help.
Another thing is who are the note-holders and how much is at stake.

So I will give a very general answer from my experiences. I’ve been at auctions where the second had made a deal with the first contingent upon the second getting the property, and when they did the sale on the first was cancelled. The first allowed the holder of the second to assume the loan for a fee or they recast it with new terms. Bidders waiting for the auction on the first only got to hear the announcement that the sale had been postponed. Other times the second just outright paid off the first at the last minute.

Strategies for bidding and dealing often depend on the laws of the state and some things I used to do I can’t do now because of changes in the law that were made for other reasons but the effect on me was they took those options away.

But we would need a lot more detail to even speculate what may happen, it’s the old sci-fi robot saying insufficient data, unable to compute.


How much is 2 plus… ___ = ? - Posted by JT-IN

Posted by JT-IN on July 13, 2007 at 19:49:06:

I’m waiting for the answer…

Kind of tough to answer without all the facts (or factors), isn’t it…? Foreclosures are the same way. They vary from county to county, let alone from state to state… so in addition to all the other details posted, how about letting us know which state the foreclosure is taking place… and then we can enter an educated guess at what you might be up against…

Just the way it is… really.


Re: Simultaneous Foreclosure -1st and 2nd Liens - Posted by Tyler

Posted by Tyler on July 16, 2007 at 18:38:53:

If I won the bid on the 1st, wouldn’t the second automatically become null and void, and thus “non-foreclosable?”

Open bidding on 1st… - Posted by JT-IN

Posted by JT-IN on July 14, 2007 at 19:14:19:

And 2nd doesn’t protect themselves, the 2nd is history… They would be 10 minutes too late, wouldn’t they…?

I could see if the 2nd went to auction before the 1st mtg… but not the other way around. What am I missing here…? Certainly this varies widely from state to state, but I am not familiar with anywhere that the 2nd would survive the auction of the 1st, unless they outbid the 1st and prevail as the high bidder. Your comments Nat…?


Re: Simultaneous Foreclosure -1st and 2nd Liens - Posted by Natalie-VA

Posted by Natalie-VA on July 17, 2007 at 06:18:36:

Yes, the 2nd should be gone, but I’ve seen crazy things happen. Just be prepared for anything, even if it doesn’t makes sense.


Re: Open bidding on 1st… - Posted by Natalie-VA

Posted by Natalie-VA on July 15, 2007 at 10:47:36:

Hi JT,

It seems like almost anything can happen in these situations. My point is to warn the poster that buying at auction is risky and to be careful.

I’ve seen many instances where the 2nd survives the auction of the 1st (at least for a little while). It probably shouldn’t by law, but seems to happen in practice.

A lot of times, if it’s 2 different lenders, there will be 2 different attorneys conducting the trustee sales. Each attorney only cares about his client getting paid. I would think that the 2nd would legally be gone, but someone would have to make an issue of it. Here’s an example:

Last year, one came up that had a first and a second. There were two different lenders and two different attorneys (trustees). The first went to sale, and the bidding went high enough to pay off both the first and the second and around 100k for the former owner. Well, you usually have around 15 days to settle here. Most investors (not me) take the whole 15 days to do it.

A week later, the second went to sale. I was the winning bidder at this auction. I knew that most likely the winner from the first auction wouldn’t close for another 7 days, so I settled and recorded within 2 days. The proceeds from the sale paid off the first. Everything went okay and no one objected, but I think a number of things could have happened.

The lender for the 1st might have refused a payoff saying that they already had someone getting ready to settle.

The buyer at the first could have objected and said that the first sale extinguished the second.

I’m sure other scenarios could have come up also. The bottom line was the the foreclosure attorney who conducted the sale of the second (where I won) didn’t care about anything but getting his client paid. Since the first sale hadn’t settled yet and paid off his client, he was going to move forward.

The whole thing makes you wonder at what point is the forclosure official? It should be official at the auction, but all of the money (and deed) haven’t changed hands yet. I’ve had other situations where I won at auction and then the attorneys received payoffs AFTER the auction but before I settled. In most of these cases, they will rescind the sale to avoid litigation, but I don’t think they really have to.

I could go on about auction stuff all day. Very risky and lots of fun!


I agree with the risk factor - HIGH - Posted by JT-IN

Posted by JT-IN on July 15, 2007 at 15:37:38:


Sounds like Cowboys and Indians at your sale… A wee bit out of control. LOL I am sure that there is a legal protocol for practice in how things should be done. The presiding officer, be that the sheriff, clerk or Trustee, should be following what is just, but I do agree that they are out for themselves and their clients, especially if they are allowed to run rough shot over folks at the sale. It is surely “buyer beware”, no doubt.

So much of these happenings also depend on the local and state venue, that it is hard to compare notes on foreclosures outside of your area, and know what should be the law of he land. So I was deferring to theory, which I readily admit may be a longshot from what goes on in the real world, at times… (when no one is looking).

You and others are certainly right to caution those that aren’t savey with the process. If it only saves one hide…

Have a great Sunday…