2nd Is Foreclosing...what Can I Do?
I have just a couple quick questions and these numbers will be made up for the sake of making it easy. OK here we go...
Have a house where the 1st is their mortgage and the 2nd is a home improvement loan. The 2nd is in default and foreclosing on the property and the 1st is NOT in default. Here are the made up numbers:
FMV: 120k
1st: 60k
2nd: 10k
Questions:
1. When the 2nd forecloses what happens to the 1st?
2. How can I move in on this and make some money?
Thanks,
Andrew
Ok let me see if I can explain. The second lien holder has to pay the mortgage payments in order to forclose to get their second. In order for them to get their 10,000 they have to pay off the first 60,000. This is why it is risky to be in 2nd postion. My question is why have the homeowners not made the second mortgage payment? Have you had an opportunity to talk with the owners. There is a story there and I think before you can assess as to how you make money on the deal you need to find out what that story is. Where is the property located?
I had a short conversation with these people and this is what I was told. They went from a 2 person income to a 1 person income do to medical reasons. They were not able to make both payments so they figured the best they could do is to make the payment on the 1st and hoped that they could get some family help on the 2nd. However they could not get any help and now they find themselves in this situation.
Property is located in a smaller southern Arizona town and the market is pretty good there as of late.
Andrew[ Edited by tarrx3 on Date 05/08/2004 ]
Andrew,
[ Edited by loanbabe on Date 05/08/2004 ]
Are they willing to sell? If they are you could offer to buy the property from them. Offer to give them 10-15 thousand over what they owe on both mortgages. Then you could turn around and put it on the market or rent it out. How soon is the second going to forclose? If they dont want to sell I could help them out with a refinance and pay off that second. I now the goal is for you to make some cash but just thought I would throw that out there
LoanBabe, what you have said would not wash in Florida. I do not know about AZ where the OP is from. When a second mortgage holder forecloses here, he does not worry about the first. The person who buys at the auction is automatically buying subject to the first. Many who have not done their homework buys these, only to be suprised to learn that they still owe the balance of the first mortgage.
Quote:
On 2004-05-08 23:22, loanbabe wrote:
Ok let me see if I can explain. The second lien holder has to pay the mortgage payments in order to forclose to get their second. In order for them to get their 10,000 they have to pay off the first 60,000. This is why it is risky to be in 2nd postion. My question is why have the homeowners not made the second mortgage payment? Have you had an opportunity to talk with the owners. There is a story there and I think before you can assess as to how you make money on the deal you need to find out what that story is. Where is the property located?
GeneralSNAFU
Explain further, If the second is bought at the auction and he comes up with the balance for the 1st mortgage to pay it off, The bank accepts payment but the 1st 's satisfaction is still in the name of the original owners. How /when does the property deed go to the auction bid winner?
Look, this is not that tough to figure out. Lien priority is simple. All the claims against a property are arranged in order of priority, as if the lienholders were standing in line. When you foreclose all of the people behind you in line go away. All of the people in front of you are still there. When you sell a property people get paid in the same order. The guy in front gets his money, then next guy gets his and so on until you either run out of guys (in which case the last guy is the owner and he gets whatever's left) or you run out of money (in which case those other guys are going to be suing).
So, if the second forecloses what is for sale at the sherrifs sale is the second position. Everybody behind that position goes away. The first, who is in line in front of the second, remains. If the property gets sold the first will have to be paid off.
So your goal as an investor is to get as close to the front of the line as possible. Unfortunately you can never be exactly at the front because the first two positions (and maybe the third) are already taken by the Federal Government and the State government relative to their property taxes. In addition in most states the third position is taken by any mechanics liens or other preferred creditors. (this is why your mortgage docs always say you will keep the property free of liens, they take priority to the first mortgage).
So you can do the same things you can always do when there is a foreclosure only you need to understand that there is still someone else in line in front of you.
Often there is a clause in loans (especially firsts) that allow accelleration of the note if "any" other liens are foreclosed on.
10K is peanuts, if there is equity in the house take it subject to and make up the payments on the second, and sell the home.
[addsig]
In fact, I can hardly believe that they are foreclosing unless there is a lot of equity in the home. I bet it costs t hemclose to 10 K to go through the process and put a rentor in/sell etc.
Most people would sue for specific performance on the note in lieu.
As I think of it, you could buy the note, renegotiate with the owners and maybe do both of you a favor.
I would imagine you could buy the note for 5-6K at most considering their costs.
I would try to buy the note too!
C- :-o
Ok,
Since I am so-o-oooo much interested in steps of note buying I just have to ask this 2 questions:
1. When you call the mortgage company and try to buy the note what department are you asking to speak to? Would this be the same Los Mitigation department as in any Short Sale attempt or they have different entity responsible for sale and negotiating of none performing mortgage loan?
2. Do you still need to have an authorization to release from the home owner in order to discuss buying of the note? If you are not able to contact the homeowner, how do you find out the mortgage loan number?
Thanks in advance!
PerlUser.
[ Edited by Perluser on Date 05/13/2004 ]
I think I would call and ask who would be the appropriate person to talk to. IF it is a mortgage company then the loss mit dept would be a good place to start. IF it is a finance company , ask..
I think that to buy a note you might not need an authorization as most notes are portable and not subject to the privacy laws.
Ok,
So if I understand correctly there are 2 things present in every transaction:
1. Mortgage – an instrument to secure the interest of the lender in the property (and this is what is getting recorded)
2. Note – a promissory document describing the terms of financing, pay off and referencing a mortgage that secures the interest in the property.
How would I be able to obtain the actual loan (mortgage number) for every lien without talking to the homeowner if in transaction history of the title search will only be the reference to the lien and book and page of recording but not the actual loan (mortgage) number?
Basically I am looking for what to say to the bank if I will call to buy a note and don’t have the loan number but only property address?
Sorry for the long post but I really need to understand this.
Thanks,
PerlUser.
:-? :-? :-?