So if the first mortgage holder forecloses, the second trust deed goes away. If the second forecloses, you'll still owe the first.

Oftentimes, if a senior lien forecloses, the junior lien holder will send a representative to the auction to defend its interests by making sure the property goes for enough to pay the junior lien as well. Or they buy it themselves with the idea of reselling. Costs money, yes. But better than losing their whole investment.

The home must be able to be appraised at the completed price. For example:

Say the home is listed at $150,000 and has an old outdated kitchen and bathroom. Before making an offer you get estimates from an approved FHA203K contractor for remodeling the kitchen and bathroom. The estimates come in at $30,000.

An appraiser will then appraise the home as if the remodel has already been done. As long as the home appraises at $180,000 you will be able to get the loan.

A big advantage to doing it this way is you do not need to have that $30,000 in hand or need to borrow the money later at higher rates. The rehab is done right away so you do not have to live with the outdated kitchen/bathroom. Your monthly payment on the loan on 150K vs 180K should amount to around $180/month additional.