The lender does have a first mortgage lien on the property. The property is sold at a foreclosure sale and anyone can bid on it, but subject to the liens in place. If the first mortgage lender has the highest bid then it is sold to them and wipes away the junior lien holders. If the highest bid is less than the amount of the outstanding first mortgage, then the lender can go after the owner personally for the difference between the amount owed and the winning bid amount.
Whenever an owner has a foreclosure and then a lawsuit for the deficiency amount then other lenders are sure to notice -- and not in a good way.
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