Bought a second lien for $9k, and the first foreclosed me out of existence
Construction is my background, so I understand structures better than I understand liens, and I proved it. The note was a second mortgage, $31k balance, on a 1,400 square foot house in an older suburb. The seller's tape said the borrower had stopped paying in 2023 and the property had equity. I paid $9,000, which felt like nothing against $31k.
What I didn't check carefully was the first. It was a $132k balance and it was also in default, further along than mine. I knew a first existed. I assumed "equity" in the tape meant equity above both loans. The value came in around $148k when I finally got a real opinion, so there was maybe $16k of theoretical room, and I never verified where the first stood in its own process.
The first lienholder completed its sale about seven months after I bought. Bidding went to roughly $139k. First lien plus its accrued interest, advances, and fees ate that. My lien attached to the property, the sale extinguished it, and whatever thin surplus existed went into a process I was too slow and too uninformed to chase. I spent $9,000 plus about $1,400 on an attorney and a title report and got nothing back.
What I'd do differently: pull a current title report and the first lienholder's case status before I bid, not after, and treat the senior loan's payoff plus its accrued fees as the number that has to clear before I have anything. Whether surplus proceeds are claimable, and by whom, and how long you have, varies by state, so that part needs a local attorney. My mistake didn't need one. I bought a junior position and priced it like a first.