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Law Educator, Esq.
Law Educator, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 116715
Experience:  Licensed attorney practicing landlord-tenant, land use and other real estate law and litigation.
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A 2nd mortgage is owned by a bank who sells it to its wholly

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A 2nd mortgage is owned by a bank who sells it to its wholly owned subsidiary that is the legal holder & servicer (not owner) of the 1st mortgage on the same house.2 years after selling the 2nd to its servicer; the servicer forecloses on the house in the name of the 1st. The servicer buys the house in the name of the 2nd lien, at an auction no outsiders attend, for $11,000 more than the total amount of debt due on the 1st mortgage, but, $ 250,000 less than the suggested highest bid on the servicer's bid worksheet created for the 2nd lien.The $11,000 excess over 1st mortgage is credited to the 2nd,
and the 2nd (now owned by the servicer's subsidiary) is suing the homeowner for the full amount of the original debt on the 2nd less $11,000.Question: Does the homeowner owe the full amount of the debt less $11,000 on the 2nd? Should the homeowner receive credit on his remaining debt by whatever amount the servicer paid its parent when purchasing the 2nd? Does the suggested maximum bid on the servicer's 2nd lien bid worksheet have any legal effect on the homeowner's liability?
Submitted: 11 months ago.
Category: Real Estate Law
Expert:  Law Educator, Esq. replied 11 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
I am afraid the first and second mortgage, even if they were always held by the same bank or different banks, are two separate loans. If the first loan is foreclosed on, anything in excess on the foreclosure goes to the second loan, BUT any balance on the second loan becomes an unsecured debt of the borrower. Meaning the borrower still owes the balance regardless of who owns the loan. So, yes, the borrower owes the money minus what the excess payment on the first loan was that was credited to the 2nd loan.
As the second loan is now unsecured, the borrower could file for bankruptcy to extinguish that loan and other debts if the borrower chooses to do so and qualifies.

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