What happens to other liens when foreclosure occurs?

Different states laws vary regarding what happens to so-called secondary liens when a bank forecloses on a mortgage lien with priority.  However, there are some general rules that may apply to any situation.  For example, it is generally true that unless the property sells for more than the amount owed on the mortgage, secondary lien holders will lose their interest in the property as collateral.  Note, however, that even though secondary liens on the property may be extinguished, your contractual obligations to pay the lienholders are not extinguished.  In other words, you will still owe on your promises to pay those who had liens on the property.  If the property should happen to sell for more than you owe on the mortgage, then lienholders that were secondary receive proceeds in the order of their “priority,” as established by state law.  Depending on the state, priority could be based on those whose contracts were signed first, or on those whose liens were recorded first in the property records office, so you should check with your attorney to make sure you have correct information for your state.