I'm being forclosed on by a second note holder for 120k I have a first note with Wells Fargo thats current. How will the first respond?

When your house is foreclosed, the first noteholder will always be paid first out of that foreclosure sale. You do not have to glory that the second lien holder will not pay the first lien holder, as the closing attorney must pay the first lien holder before transferring title. This happens on a regular basis and the banks will work it out, for the title to transfer correctly the first noteholder must be paid in full before the second noteholder received anything from the foreclosure sale. The problem that is going to arise or could possibly arise is the fact that if the foreclosure sale is not enough to cover your first and second mortgages then they may be a deficiency judgment against you which the bank could go after you directly or they could simply write it off as a loss. If they write it off as a loss, then the report this to the IRS and the IRS considers this amount to be income for the taxable year of the auction sale. Meaning if your mortgages for $200,000 and the foreclosure sale was for $150,000, then you have a deficiency of $50,000. This $50,000 can either be used by the bank for a lawsuit against you or most likely they will simply write it off as a loss, but this loss will be reported to the IRS and the IRS will be consider this loss as you received $50,000 in income for the calendar year all the foreclosure sale and they will tax you important link to that on a 1099 form. Filing a chapter 7 bankruptcy prior to the foreclosure sale being completed will deal with all the issues I have listed in this answer. I have responded to your inquiry according to the laws of Massachusetts, where my firm is located. Laws can vary significantly from state to state and cases tend to be rather fact-specific, so you are best served by consulting with a knowledgeable attorney in weighing your options. Email messages/Online Correspondence are akin to conversations and do not reflect the level of analysis applied to formal legal opinions. Email/Online responses do not form an attorney-client relationship.    Joseph F. Botelho, Esq. BOTELHO LAW GROUP Attorneys At Law http://fallriverbankruptcyattorney.com/ 901 Eastern Ave.  Unit 2 Fall River, MA 02723  Office:  888-269-0688 FAX:    877-475-8147