Re: Buying a 2nd Mortgage foreclosure

Posted by Julio Martinez-Clark on February 28, 2008 at 12:13:21:

In Reply to: Buying a 2nd Mortgage foreclosure posted by WashingtonStateInvestor on February 27, 2008 at 18:00:26:

From Wikipedia (http://en.wikipedia.org/wiki/Subordination_%28finance%29) :

Subordination of debt

Subordination is the process by which a creditor is placed in a lower priority for the collection of its debt from its debtor's assets than the priority the creditor previously had,[1] In common parlance, the debt is said to be subordinated but in reality, it is the right of the creditor to collect the debt that has been reduced in priority. The priority of right to collect the debt is important when a debtor owes more than one creditor but has assets of insufficient value to pay them all in full at the time of a default. Except in bankruptcy proceedings, the creditor with the first priority for collection will have the first claim on the debtor's assets for its debt and the creditors whose rights are subordinate will thus have fewer assets to satisfy their claims. Subordination can take place by operation of law or by agreement among the creditors.

"Subordination of security priority

Subordination is also an issue in the priority of security interests in the ownership of property. For example, in real estate, mortgages and other liens on the title to secure the payment or repayment of money usually take their priority from the time they attach to the title. The purpose of this ordering of priority is to determine, in a foreclosure resulting from a default, who gets paid first with the sale proceeds from the foreclosure proceeding. Earlier mortgages or other liens are often subordinated by their holders to later ones in order to accomplish agreed-upon ends. An example is for the holder of a mortgage on undeveloped land to subordinate that mortgage to a later construction loan mortgage. The motivation is either the belief that improvement of the land will benefit the first lender or that the first mortgage requires that it be subordinated to a future construction loan."

So, your assertions are correct. Second lien holders foreclose on properties when they see that there is enough equity in the home for them to get paid something and/or to be able to get a mortgage deficiency judgment ASAP so that they can come after any assets that the defendant may have.

Julio Martinez-Clark

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