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Foreclosure Subordiante Morgage question

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Lee F

Member
What is the name of your state? VA
I am looking at a trustee sale foreclosure auction. The bank is foreclosing on a first lien that is part of a FHA home affordable modification agreement with HUD having a subordinate mortgage for the smaller modification amount. What happens to the HUD subordinate mortgage when the bank forecloses on the primary first mortgage?
Thanks....
 


FlyingRon

Senior Member
A foreclosure extinguishes the junior liens. If there is enough money from the foreclosure sale to fully pay off the senior liens, then the junior ones get paid off in the order of their priority. Most banks will bid "what they have in" the property to protect their interest, which usually means the winning bid is the bank and the property becomes REO that the bank then tries to sell the best they can.

If you are thinking about bidding on the foreclosure auction, you take all the risk, and as stated, you're not likely to get a bargain unless there is substantial equity in the place (in which case, it would have been unlikely to have been foreclosed upon to begin with).

If you're buying an REO, then you really don't even need to know about the foreclosure. Just follow the standard good ideas when buying the property to include owner's title insurance.
 

Taxing Matters

Overtaxed Member
I am the buyer.
Then if you are unfamiliar with the process I suggest you consult a real estate attorney who is. The type of foreclosure matters, for example, and there are a number of potential pitfalls that could cause you trouble if you don't know what to look for. Note that while it appears that in VA a deed of trust sale will discharge junior liens from the property, there are special rules under federal law for any federal tax liens or other federal government liens.

By the way, REO stands for real estate owned and is a phrase used to indicate property owned by a lender after a foreclosure sale. Basically the lender bids in on its own sale and then becomes the owner of the property. Once the lender becomes the owner of the property it is a regular seller of the real estate like any other.
 

Lee F

Member
A foreclosure extinguishes the junior liens. If there is enough money from the foreclosure sale to fully pay off the senior liens, then the junior ones get paid off in the order of their priority. Most banks will bid "what they have in" the property to protect their interest, which usually means the winning bid is the bank and the property becomes REO that the bank then tries to sell the best they can.

If you are thinking about bidding on the foreclosure auction, you take all the risk, and as stated, you're not likely to get a bargain unless there is substantial equity in the place (in which case, it would have been unlikely to have been foreclosed upon to begin with).

If you're buying an REO, then you really don't even need to know about the foreclosure. Just follow the standard good ideas when buying the property to include owner's title insurance.
Thanks very much. It is a courthouse steps trustee sale so not a REO. I was concerned that there may be special circumstances being that the second is a government, HUD, loan. It appears that is a possiblity. There is substantial equity from the first mortgage that the bank owns but not if the second HUD comes into play, it is a substantial amount.
 

Lee F

Member
Then if you are unfamiliar with the process I suggest you consult a real estate attorney who is. The type of foreclosure matters, for example, and there are a number of potential pitfalls that could cause you trouble if you don't know what to look for. Note that while it appears that in VA a deed of trust sale will discharge junior liens from the property, there are special rules under federal law for any federal tax liens or other federal government liens.

By the way, REO stands for real estate owned and is a phrase used to indicate property owned by a lender after a foreclosure sale. Basically the lender bids in on its own sale and then becomes the owner of the property. Once the lender becomes the owner of the property it is a regular seller of the real estate like any other.
I do have a real estate attorney involved but wanted a couple more opinions. I have had the title search done and there are no liens other than the first mortgage owned by the bank that is foreclosing and the subordinate mortgage that is HUD owned...for a substantial amount of money. In normal circumstances, yes, the secondaries are discharged. I just wasn't sure since it was a government owned second if special rules apply...which it looks like could be the case. Thanks for your advise....
 

FlyingRon

Senior Member
You do know you're going to show 10% of your bid in certified funds at the sale and come up with the rest within 15 days.
 

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