“So, is the correct thing for the 2nd lender to do is let the 1st foreclose & hope that there is enough $ after the sale to pay the 2nd lender ?”
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I don’t believe so. I believe if the 1st mortgage is foreclosed, the 2nd mtg will be extinguished. Not a good result for the 2nd mtg holder.

I believe the play is for the 2nd mtg to foreclose, extinguishing all junior liens, and take the property to sale. 1st position gets paid off and 2nd position takes the rest.