If our second mortgagee foreclosed and auctioned our debt at a trustee’s sale, is it legal not to notify the first mortgagee?

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If our second mortgagee foreclosed and auctioned our debt at a trustee’s sale, is it legal not to notify the first mortgagee?

We tried to do a short sale on our house for 5 months. We had 2 mortgages. We received several offers but the 2nd rejected all of them due to a totally unrealistic Broker Price Opinion. The 2nd suddenly foreclosed on us, despite our many attempts to work something out with them. The 2nd tried to auction our loan at a trustee’s sale but it did not include the 1st or our house – just the debt. No one bought it so the bank bought it back. Is it legal for the 2nd to foreclose without involving the first?

Asked on November 8, 2010 under Real Estate Law, Utah

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Generally speaking, all parties who have an interest in the property - lien holders have an interest in the property - should be notified of the foreclosure action.  In some states, however, how the foreclosure is done can vary.  In most states the senior lien holder has the priority and should be paid first.  But in some states whomever is holding the foreclosure - here the second mortgage holder - can starts the bidding at their lien and then the purchaser is responsible for paying off the first mortgage.  Check with a real estate attorney in your area on what is done and how things happened.  Also ask about your options are with forcing a short sale next time.  It is just the deficiency that you do not want. Good luck.


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