I had a go at it. You indeed need a For Each (ordered) but only for picking the Object2 with the minimal Y coordinate.
Objects stop flashing if the overlap cease to be, dunno if it's what you wanted but it made more sense to me that way !
Thanks very much for the help! I don't think I quite explained what I had in mind though - in your game object1 slides over object 2 at different times whereas mine all happens at once (i.e. you place a block that covers multiple objects but it resolves destroying them 1 by 1 based on their Y axis coordintes, regardless of when the overlap began).
Do you know what I mean? If not I could mockup a diagram to help explain it