Rights Of The Second Mortgage
If a property is foreclosed on by the first mortgage of $50,000 and there is a second mortgage of $200,000, what can the second mortgage do to recover their money? Are they basically out of the picture if they don't file a notice of default first? Is it wise for a seller to carry a large second mortgage if there is a small first?
To recover they will have to bid at the auction - they undoubtedly will.
Still, if they end up owning the property they don't reall ywin, since they are not in the RE business but in the money / lending business. Their loan is no longer an asset but a liability, and they will have a problem if they gather too many properties. FDIC won't tolerate it.
Is it smart to have a large second? Your challenge is that you've got more at stake while you can't control if the owner is sending his payments to the first lienholder.
What happens when the second mortgage forecloses? Is the first mortgage put in the same position?
Mike