I have a question about foreclosure. If a house with two loans is

[jwirr]

foreclosed on why would the second loan still be on the credit bureau records? The first one was taken off but not the second one - what went wrong?

[Lil Missy]

1. Were they both paid off?

[Orrex]

2. Was the second loan restructured or sold to a new lender at some point?

In either case, it's possible that--for a time--the loan appeared twice on the credit report. Assuming that the real loan was paid off, the "ghost" loan could still show up and would need to be contested.

This happened with my wife's student loans; years after she consolidated them, we learned that the original loans were still showing up on her credit along with the new, consolidated debt.

[customerserviceguy]

5. Your wife's student loans were refinanced

In this case, the second loan wasn't paid off, the only thing that happened is that the first lender did a foreclosure which took the security away from the second lender, and the borrower didn't pay off the amount of the second loan. It's a different thing entirely.

[Orrex]

8. It was a suggestion based on the information avaiable at the time

When I posted, the OP hadn't revealed whether the first or second loan had been paid off.

Others here asked about the status of the second loan and received no answer. :shrug:

[suston96]

3. Better make sure both were paid off.

Call the second mortgage company. Actually, the bank of the first mortgage doesn't have to pay off the second mortgage until the property is resold.

I was checking out foreclosed properties looking for a good deal and many of the properties had labels that said: 'no clear title.'

If there is still a second mortgage lien on the property it cannot have a clear title. You can also check your county registry of deeds to see what's still recorded there.

If you feel you have a legal situation by all means get legal advice from a lawyer or legal aid in your community.

[customerserviceguy]

4. Where I used to do title insurance

The second loan didn't have to be paid off by the bank foreclosing on the first loan at all. It was still considered the 'debt' of the borrower, and that's probably why it is still showing on a credit report.

I don't see anything unfair about that, the borrower took out two loans which he/she promised to pay, the first one was 'satisfied' by the foreclosure, and the second one is merely unpaid, and a written-off debt. Why shouldn't future prospective lenders know about how both of them turned out?

[suston96]

6. True dat......

What you say is true but until or unless the recorded second lien (mortgage) and any other liens are satisfied there can be no clear title. The bank attempting to resell the property will have to pay off the second mortgage and clear that title of any and all encumbrances and then seek recourse from the former foreclosed property owner.

Good luck to that bank on that. I think that is why I ran into so many properties with warnings of 'no clear title available' when I was checking out foreclosed property sales.

But the OP should still check out the registry of deeds to see what encumbrances and releases are actually recorded. A friendly clerk at the registry of deeds can walk the OP through the process.

[customerserviceguy]

7. Maybe it's different in your area

but where I was a title examiner/officer for over two decades, as soon as the foreclosure was a done deal, the second mortgage was just wiped away; even though the debt was technically alive, it was no longer secured by the real estate, and the property could be conveyed by either the lender or an independent buyer at a foreclosure sale free of the lien of the old second mortgage.

I worked in Washington State, which modeled it's real estate laws after California's.

[happyslug]

9. The question is who asked for the foreclosure?

If the house was foreclosed on by the bank that held the first mortgage, when the Sheriff sold the house, that act wiped out all subsequent liens on the property. In my home state, and many other states, the law view the act of the First Mortgagor when the house was foreclosed on, was a sale of that house from the bank that held the first mortgage to whoever purchased the house. The person who failed to pay the Mortgage is viewed as NEVER TO HAVE OWNED THE HOUSE. This is called a "Legal Fiction" i.e. everyone knows that the homeowner had owned the house, but for purpose of the foreclosure that ownership is treated as it never existed. Thus any subsequent mortgages or other liens are wiped clean as if they never were lien on the property.

A problem comes up if the house is NOT sold by the First Mortgage holder, but by a Second or subsequent lien holder (Order is set by who registered their lien with the County Recorder of Deeds, or the Prothonotary, if it is a Judgment NOT a mortgage, first). Then whoever purchased the property bought it subject to any superior mortgage or other lien on the property. This can lead to some problems, for example I had one client who purchased a house at a Tax Sale for about $300. She lived in it for about two years then the bank foreclosed on the property. Her purchase at a tax sale was subject to any and all prior mortgages and liens, and one of them had been a mortgage on the property (No one else made a bid, for they did a title search and found the mortgage and knew better then to buy the property). On the bright side, she lived in the house for almost two years for about $300. I told her to contact the bank and when the house is sold tell them she is willing to buy it from them for a reasonable price. Given the circumstances the bank might have made the deal (I also told her since she was NOT a party to the Mortgage she could bid on the property at the Foreclosure sale, if the bank's offer was less then she believed the house was worth AND she could come up with the money).

Foreclosed property is almost always sold to the First Mortgage holder, the reason being they are willing to bid what the outstanding mortgage is worth (i.e. to later pay themselves those same proceeds). If the house is sold for MORE then the first mortgage holder is owned. the excess is suppose to go to the Second and other lien holders.

If the house is worth a good bet of money it is often the Second, Third or subsequent lien holder who has the Sheriff do the foreclosure. That lien holder then buys the property wiping out all liens subsequent to the one he foreclosed on, but also knowing that any superior lien survives that foreclosure.

In theory such superior liens MUST be paid before it is sold, but the property can be sold SUBJECT to those superior liens. If you are smart you do NOT do it, but it can be done. On the other hand subsequent lien holders only get what is paid for the property over and above what is owned to the party that did foreclose (In theory, they can demand that money, but it is a claim on the money paid for the house NOT the house). Thus it is common for the second, third or other subsequent lien holder to bid on the property over and above what the First lien-holder is asking for in the foreclosure, just to protect their lien on the property (i.e. they pay the Sheriff the money, who pays off the first lien holder and any superior lien holder and the rest of the money to the lien-holder who made the highest bid on the property). Please note, no one will buy the house from the person who buys the house unless the superior liens are paid, so if he does not pay those superior liens, they can still foreclose on the house.

My point is you can NOT get a Clean Title, unless every lien holder above the lien holder who ends up buying the property at Foreclosure, is paid off first. If a second or subsequent lien holder is the person who does the Foreclosure AND sale of the house, the house is still subject to any superior liens unless it is paid off.

Now, sometimes a lien on on the property that is NOT a mortgage. That it is NOT a mortgage is unimportant as long as it is registered with the court. Once registered that determines its superiority in the list of liens. The early it is registered, the higher lien it is.

Now, mortgages tend to be first liens, simply because banks will NOT give a loan to buy a house UNLESS they are first on the list of liens. The Bank will do a Title Search (and buy Title insurance if available) and when it is satisfied it has the first lien, it will do the mortgage.

Now, you can get a second, third etc liens on the property. Banks will make such loans if the value of the house exceeds the first mortgage. Again only after a title search.

Other liens can be put on the property. The most common is a "Mechanic lien", which is a lien a contractor puts on the house for any improvements he does. Such liens survive until withdrawn by such Mechanic (Or is discovered when the house is being sold and the Mechanic is called and discovered he has been paid off, but never withdrew the lien, the Mechanic does so at that time). I am using the term "Mechanic" is the sense of any contractor or home repair person who works on your home. This is the traditional use of the term "Mechanic" for the word "Mechanic" only came into use in terms of Auto Repair with the introduction of Automobiles, yet the term goes back to the Middle ages.

Some other liens are
1. Unpaid Taxes
2. Judgments if filed with the County Court (Such Judgments are registered with the Prothonotary in Pennsylvania, a name in Greek which means "Clerk Of Court", in every other state called "Clerk of Court- Civil Division" or some similar name.
3. Municipal utility service, generally water and sewerage but can be Natural Gas, Electric or other Utility Service provided by your local government.
4. Child Support, any child support order is by FEDERAL LAW a lien on the property of anyone who owes child support. The question is how far behind, if any, is the person ordered to pay the support.
5. Any thing else your state says is a lien on the property.

To have a Clean Title all of the above must not exist or be paid off. Child Support arrears have been a problem over the last 10-15 years. Taxes are always a headache, but so are municipal liens. All have to be checked. A problem often occurs when a family holds onto a house for several generations. In such situations it is often unclear who owns the property today. When the original owners died, it went to their children, when those children died off it became the property of their grandchildren. The problem is often by the third generations you have someone who has lived in the house all their lives, put money into it and the other relatives viewed the house as theirs, but the law does not. Each child received an equal share. When such child died and had children, those children inherited an equal share of that child's share. Thus if the original owners had three children, two of the Children had two children but one ten, the resulting Grandchildren of the first two children have 1/6 share (1/2 of the 1/3 their parent inherited), but the Grandchildren of the last Child gets 1/30 (1/10 of the 1/3 their parent inherited). At that point you can have a real mess, someone will have to go to court to clear the title and all of the Grandchildren will either have to agree to be given the chance to object. It can be a mess.

Another problem is the last deed says X and Y, Husband and wife, purchased the property. Then the next deed says X sold it to Z. What happened to Y? Did Y die before X, and thus X had exclusive right to sell the property, or did X just cut out Y? If the former it is a good title, if the later it is a bad title. Someone has to find out what happened to Y AND WHEN. Can lead to problems.

Just some comments as to what can be the reason a piece of property has no clear title. In almost all of these cases you are buying a court case. Do you want to buy one? The general answer is no and thus these properties sit until sold for Taxes (Which cut out any owners of the property but NO liens filed in the court house).