Hi David,

This is something every bidder should fully understand before stepping into a foreclosure auction.

If the foreclosure is being initiated by the 1st position mortgage lender, then you’re bidding on the senior lien. That’s important because when the auction takes place, the funds from the winning bid go first and foremost to satisfy the foreclosing lienholder’s judgment, in this case, the first mortgage. Anything left after that is considered surplus funds, and that’s where things get interesting.

Once the foreclosing lien is paid off, junior lienholders (like a second mortgage or a HELOC) have the right to make claims on the surplus, but they must do so in order of lien priority. It becomes a race, and everyone is trying to collect what they can from the leftovers. Sometimes, especially in declining markets or heavily leveraged properties, there’s nothing left to collect, and that’s the risk they took when lending behind a senior lien. If there’s no surplus, they’re out of luck.

As the winning bidder, the junior liens are wiped out, and they can’t legally come after you. The only liens that survive are senior to the one being foreclosed, like unpaid property taxes or earlier-recorded HOA liens (if they weren’t part of the foreclosure). Those senior liens stick with the property, and you, as the new owner, take them on. But again, anything junior to the foreclosing lien gets extinguished with the sale.

Now here’s where I’ll give you a heads-up based on personal experience: even though the law is clearly on your side, and junior liens are supposed to be wiped out after a foreclosure initiated by a senior lienholder, some second lenders still try to go after the buyer. They’ll send letters, make demands, or hint that you’re somehow responsible for the unpaid debt. Why? Because they know the former owner is broke, and you, as the new owner, likely have equity and some cash in the deal. Legally, they have no standing, but that doesn’t stop them from trying to intimidate or pressure you into paying. I’ve seen this tactic used multiple times. If it happens to you, don’t panic. Be ready to respond firmly (ideally through an attorney) and shut it down quickly. Their claim has no legal ground, and they’re counting on your inexperience or fear to shake loose a payment. Don’t let them.

So bottom line: if you’re buying at a 1st mortgage foreclosure, the second mortgage is gone. The lender can chase the surplus or the borrower, but not you. Do your due diligence, know your lien positions, and you’ll be fine.

Good luck, David!