Q: I am a 2nd position lender for a property located in California. I am filing a Non Judicial Foreclosure.

A: If you foreclose as the second position lender, there are several different ways things can go. At the foreclosure auction, if you credit bid the amount you owe and there are no other bidders, you become the owner of the property subject to the first position lender's interest. You have no legal obligation to pay the loan, but if you want to keep the property, you will need to pay it. You can also sale the property and payoff the first position lender at that time. If there is competitive bidding at the foreclosure auction and the highest bid exceeds your credit bid for the amount you are owed, you will be paid in full from the auction proceeds. The highest bidder will purchase the property subject to the first position lender. Any excess funds from the auction will then pay any liens subordinate to yours. If there are none or the subordinate liens are paid in full, the foreclosed property owner will receive the remainder of the funds. The first position lien holder will receive nothing.

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A: When you file a non-judicial foreclosure as a second position lender, your priority in payments from the auction sale is determined by the lien priority established at the time of lending. Since you are in the second position, the first lender will have priority over any proceeds from the sale. This means that any money obtained from the foreclosure auction will first go to satisfy the outstanding balance owed to the first position lender.

If the auction sale generates enough funds to cover the first lender’s balance, you will receive payment only if there are surplus funds remaining after that. However, if the proceeds from the sale are insufficient to pay off the first lender's balance, you will not receive any payment, and your obligation to the first lender remains unchanged.

You are not responsible for paying any of the first lender’s balance from your own funds after the foreclosure sale. Your recovery is solely dependent on the proceeds from the sale. It’s essential to understand that your position as a second lender carries inherent risks, especially in a foreclosure scenario.