Buying Second Mortgage, Is This A Way To Go?

Perluser profile photo

Hello everyone,

I need some experienced advice from gurus on how to approach Sheriff’s sale properly.

I have found a very nice property in foreclosure through Lis Pendens with 1st and 2nd mortgages that will go for sale on May 3rd 2004. First mortgage is Chase @ $242,900 and foreclosing, second mortgage lien is a small local bank for $ 47,300. The area that house is located is very hot and market inventory is really low. I have attended several sales and any house has bids way over the foreclosing mortgage amount.

I have enough cash to buy a second mortgage at discount via assignment. If my title search will come back clean and the only 2 encumbrances on the house are 2 mortgages I have listed above I would like to buy the 2nd and then collect the difference from an overage bids during the sale. Assuming I can discount 2nd to a small amount, the profit should be nice.

My only concern is to what would happen if I buy this 2nd note and homeowner will file Bankruptcy? Will I just get stock with my second mortgage? What my options in this case? Do I need to work with homeowner to make sure he will NOT file a Bankruptcy? Anything else I should be concern in this situation?

Sorry for the long post, but I really need to know the exit strategy.

Thanks so much in advance for all suggestions,

Perluser.

Comments(10)

  • InActive_Account9th April, 2004

    On paper, what you propose is O.K.. There are a number of variables. Your profit depends on the discount you get from the local bank-IF they will discount and assign the mtg to you. Not all banks discount mtgs.

    If the debtor should find funds to reinstate the 1st mtg, you now become a long term 2nd mtg lender.

    The BK is just a delaying tactic and will eat some your profits.

    The total amount due the 1st mtgholder including all associated expenses needs to be obtained to see what you MAY realize and if that's worth the risk.

    I don't know what your relationship is with the Owner of record and what inducement$ you intend to offer him for hi$ cooperation.

  • Perluser9th April, 2004

    Sammy,

    As you pointed out this whole transaction will definitely depend on the discount I can get from the 2nd mortgage. If I am able to purchase 2nd for pennies on dollar then I will go for it.

    I am not concern too much of the fact that homeowner may reinstate. In this case I will still hold a note with a face value way over the money I have paid for it. I would be able to sell the note.

    Could you explain what exactly do you mean by “relationship with the owner of records” and “inducement $”? I am assuming you referring to the homeowner and U-Hall money I may offer him to NOT interfere with sale. Is this a good practice to approach homeowner in the model I have proposed?

    Thanks,

    PerlUser.

  • sanjosee9th April, 2004

    Make sure you are present at the sale of the first to protect your postion & bid it up if necessary to cover your 2nd .

    Bankruptcy is not as big of a problem as it may seem. You will incur legal fees to get the automatic stay lifted so that you can proceed with your own foreclosure on your note. If the courts grant the owner a payment plan. You will get paid from the BK trustee. After a few months of receiving regular payment, you can sell your note for a higher price or hold it.

    If you are successful in lifting the stay & no one bids at your sale. You must be prepared to take over or pay off the 1st, proceed with the legal process to get possession & then sell the property as-is or fix-it for higher resale.

    Best of Luck

  • hornett9th April, 2004

    how about buy the second at a discount and bring the 1st current and stop the forecloser and then you foreclose with the 2nd? sorty taking the first subject to?

  • Perluser9th April, 2004

    Sanjosse / Hornett,

    Thanks for the replies. Foreclosing 2nd will not work. It is not in arrears. Strange, I know. Why would person default on 1st and keep the second current? I am planning on attending the sale and be prepare to bid myself to motivate the investors in bringing sales price up and over what I would pay for the discounted second.

    That’s if the title search will come back clean and if there is enough equity in a property in first place. No equity will translate into no interest from the investors during the sale and, in turn, into NO bids over the asking price and bank taking the property wiping my 2nd mortgage clean. I will be prepared to bid for the first in an event of a disaster scenario when there are no bids.

    PerlUser.

  • InActive_Account10th April, 2004

    If you buy the second for a discount and then have to bring the first current, isn't that grounds enough to forclose with the second?

    JohnNH

  • commercialking10th April, 2004

    Not only grounds enough to forclose the second but. . . If you owned the second you would have standing to go to the first and try to get them to discount as well.

  • Perluser11th April, 2004

    Commercialking,

    Perhaps I am missing something here or maybe you are and JohnNH seeing this whole thing from the different perspective:

    How would that be possible for me to foreclose the second if the mortgage is current??? !st mortgage is the one who is foreclosing.

    It's possible that I am missing something here...

    Perluser.

  • Lufos11th April, 2004

    Yes dear friend you are missing something. A secondary encumbrance may protect itself by making advances to the lst encumbrance ahead of it. The basis of the foreclosure is that you had to make these advances to protect your investment. If he did not pay his taxes, you are also allowed to go forward and pay the taxes and that sum advanced is also a basis for a foreclosure action.

    Sometimes we play the game that way.

    If the first is a good interest rate and is in a sufficient amount. I would bring current then start my own foreclosure, stating as my cause of foreclosure the necessity to protect your position by advancing the necessary payments. Those payments and earned interest on those sums will be added to your demand if or when they attempt to bring you current or pay you off.

    Its a great game welcome. But learn it. Learn it all. Not a little all of it.

    Cheers Lucius 8-) 8-)

  • Perluser12th April, 2004

    Dear Lufos,

    As always you have shed completely new light on the subject for me. It is completely clear to me now that I was missing large peace of the puzzle.

    Old saying “I only know that I don’t know anything “comes to my mind every time I read your posts.

    Thank you for the cleared and detailed explanation. The more I learn about this Game, the more I like it.

    My apologies to the Sanjosse, HornettI, JohnNH and Commercialking for my ignorance. I do see clearly now what they were mentioning in their posts.

    At one day I will be good enough to pass my knowledge just as you guys.

    Regards,

    PerlUser.

Add Comment

Login To Comment