Quietcat. I am afraid that most of the good advice requires action prior to the second lien holder taking possession of the property. Options included selling the property either traditionally or via short sale (if there was no equity).
If there is any equity in the house after the banks liquidate it (and accounting for costs of selling), then I believe that your brother is entitled to receive it.
However, it is likely to be zero or much smaller than he would have received if he had sold it prior to losing possession.
The previous comments about recourse loans are important. If the 1st is the original purchase loan, the “bank” cannot come after other assets if they are not made whole. If the 2nd was taken out after purchase, then the holder of the 2nd can legally come after your brother for the difference that they lose. If they make more from the sale than covers the 2 loans plus carrying costs (unlikely) then he gets the remainder.
Remember, that these costs include 10 months worth of back payments and penalties, plus interest, and any unpaid property taxes if the escrow account was depleted. These amounts can easily add up to 30-50K or more.
