Final answer:
In most states, junior lien holders can pursue the defaulting party even after the first mortgage is foreclosed and the property is sold. They can do this by obtaining a deficiency judgment against the borrower to recover any unpaid debts.
Step-by-step explanation:
In most states, when a first mortgage is foreclosed and the property has been sold at auction, junior lien holders can still pursue the defaulting party for the amount owed to them. This is because a foreclosure typically extinguishes the property's lien but does not automatically wipe out the debt itself. Junior lien holders may seek a deficiency judgment against the borrower if the foreclosure sale does not bring in enough money to pay off the debts.
However, the specifics can vary from state to state. In some cases, junior liens might be entirely wiped out if they were not properly handled or if state law does not provide for deficiency judgments. Furthermore, there could be some instances where the proceeds of the sale are enough to satisfy the junior liens, or at least provide some distribution to them, although this is relatively rare in a distressed sale situation.