What happens with the second loan owed on our home that was sold at a foreclosure auction?

Full question:

Our home went into foreclosure. On Mar. 23, 2007, our home was sold at a public auction to the highest bidder. We had 2 loans. The sale covered the first loan, with about $14,000 left over. What happens to the second loan of about $43,000? I was told it just goes away and we do not owe anything on it. Also we got papers in the mail that says it is a Notice of Deposit of surplus funds in the amount of $14,331.85. It says, "The Trustee has no interest in the funds and is uncertain as to the relative priority claims against the surplus funds and is concerned that trustee will incur liability if the surplus funds are incorrectly disbursed". Does this mean we can collect the surplus funds? And what really happens to the second loan?

  • Category: Real Property
  • Subcategory: Foreclosure
  • Date:
  • State: Washington

Answer:

Unfortunately, you probably still owe the lender of the second loan the $43,000.00. While the second lender may have cut off its rights to foreclose, unless your mortgage instrument contains an exculpatory clause, you will still owe the debt. An exculpatory clause is a clause whereby the lender agrees that if it forecloses, it only will get the proceeds of the sale and the rest of the debt will be cancelled. This type of clause is commonly used in commercial transactions, but not residential loans.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

The biggest cause of foreclosure is typically the inability to make mortgage payments. This can result from job loss, medical expenses, divorce, or other financial hardships. When homeowners fall behind on payments, lenders may initiate foreclosure proceedings to recover their investment.