Question:

Why is a second mortgage purchased?

Answer:

A second mortgage purchase will be made with the purpose of initiating a foreclosure process and eliminate third and fourth liens if any. An investor would purchase a second mortgage with the purpose to foreclose on a house before the first lender does, if a high bid is expected.

Thus, when the second mortgage is purchased for a minimum sum as the second lien holder will be happy to get any money back, the owner of the second lien may initiate foreclosure. If the house sells as expected, the first lender is paid the outstanding first mortgage balance plus arrears, and after paying taxes the second mortgage purchaser will have successfully netted a significant sum.

If the house doesn't sell, the investor who purchased the second mortgage may keep making payments to the first lien holder instead of coming up with the entire amount owed to the first lender.

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