Side tracking, say the first lender holding the 500K note forecloses; do they have any legal responsibility to prevent them from dumping at 500K versus 550K to move it quickly? Effectively hosing the people holding the second?
As far as Beach Rat’s question goes, if the 1st lender forecloses, there is nothing to prevent them from selling at $500K or less. The holder of the 2nd loan would have to protect their investment by being at the foreclosure sale and bidding it up to create surplus funds. They are entitled to receive surplus funds from the sale up to the amount they are owed. If there is no surplus funds, they lose it all. The buyer at the sale, whether it be a third party or the foreclosing lender has no obligation to any junior lender.
