Legal Question in Real Estate Law in California

If the foreclosure sale produced enough cash, the second mortgage would have been paid. If it did not, which is common these days, you would owe the remaining balance as an unsecured loan, unless the making of the second was closely tied to the making of the first (i.e., same lender at the same time) or unless the second was a purchase-money loan on an owner-occupied house.

If the second wasn't paid at all, the foreclosure sale caused the second to become what is known as a frozen out junior lienholder. I doubt in this market that the second received any funds at all. The second can file a lawsuit against you because the security has been exhausted by the senior's sale.

Mr. Whipple does point out several exceptions, which are correct. If the second could be considered a purchase money loan, or were the foreclosing lender on the first, the rule would be inoperable. Interpretation of financing as a purchase money loan has been broad, and it has been applied to construction financing that was subordinated to a first.