Hola Victor,

As Damon correctly pointed out, any surplus from a foreclosure sale on a junior lien (like a second mortgage) will never be applied to the superior lien balance. The overage, by law, goes back to the homeowner (or potentially other junior lienholders if they file claims), not to reduce the first lien. That means you must be ready to satisfy the first mortgage in full yourself.

That said, if your analysis shows that even after paying off the first lien you still have solid equity, then it can definitely be a profitable play.

Here’s a tactical angle: in many cases, experienced investors prefer to wait and bid at the first mortgage foreclosure sale, since it wipes out the junior liens and feels more straightforward. As a result, the second-lien auction often draws little competition, which could allow you to win the property at a very low bid. If that happens, you’d then cover the first mortgage, cancel both liens, and keep whatever equity remains as profit.

The key is making sure your equity cushion is strong enough to justify taking on the risk, because in these scenarios, you’re effectively stepping into the borrower’s shoes against the first mortgage holder.

Simple answer is that the property had other liens that would not have been cleared making this a losing proposition. Just look at the plaintiffs, they were a private party, not a big bank. So this tells me this was not a first position mortgage, and there's another large mortgage here.

If you are interested in ff you’re bidding at a foreclosure sale on a second mortgage, you need to understand how the payout waterfall works. The clerk doesn’t apply overages to the first mortgage balance. The foreclosure sale is only wiping out the second lien. If bidding goes higher than the second lien’s judgment amount, the overbid (also called surplus funds) is held by the court registry. By statute, those funds belong to the homeowner and any junior lienholders who file claims, not to the first mortgage holder.

The first mortgage stays in place no matter what you bid. You’re essentially buying the property subject to that first lien. If you want it paid off or reduced, that’s on you after you take title.
That’s why most investors only bid on second liens when the equity margin is massive and they’ve double-checked title. You need to factor the full payoff of the first mortgage into your max bid calculation and treat any surplus as gone, you won’t see it again.

Bottom line: bid as if you’re writing a check for the first plus your bid amount, because that’s the real cost of acquisition. If the numbers still make sense with that assumption, then you’ve got a deal worth chasing.