Notice

• The first mortgage lender and second mortgage lender each has a mortgage lien on the same piece of property. When a mortgage lender forecloses, the lender has to involve all parties holding an ownership or lien interest in that property. Therefore, if the first mortgage lender initiates foreclosure on the property, it must involve the second mortgage lender in that foreclosure process. In judicial foreclosure, this means the second lender must be a party to the foreclosure lawsuit, while in nonjudicial, or power of sale, foreclosure, this means the foreclosing lender has to provide notice to the second lender.
  
  

Lien Elimination

• When a mortgage lender forecloses, the lender causes the secured property to be sold at a public auction. The purchaser at the auction acquires whatever right the foreclosing lender had in the property at the time when the mortgage loan first attached to the property. By definition, a second mortgage lien does not attach to the property until after the first mortgage lien has attached to that property. Accordingly, foreclosure on a first mortgage loan results in the discharge and elimination of the second mortgage lender's lien on the property.
  
  

Right to Proceeds

• A foreclosure sale produces sales proceeds that can be used to pay off liens on the property sold. In some foreclosures, the sales price may be high enough to pay off the first mortgage lien, but not any other liens in the property. In fact, most foreclosure sales result in the mortgage lender making a credit bid equal to the amount due on the mortgage loan, which means the sales price is exactly equal to the payoff balance on the first mortgage. As a result, there is no extra money to pay off the second mortgage lender, so the second mortgage lender remains unpaid and loses its lien on the property. But, if the sales price is high enough, there may be enough money to pay off the first mortgage plus some or all of the second mortgage.
  
  

Lien Protection

• A second mortgage lender's only option to protect its lien on the property is to pay off the first mortgage before the foreclosure sale. The second mortgage lender has the right to pay the first mortgage lender the total balance due on the first mortgage loan. If that happens, the first mortgage lien is paid off, thereby causing the second mortgage lien to move into the position of first mortgage lien. However, this option requires the second mortgage lender to come up with the cash necessary to pay off the first mortgage.