How Do You Foreclose On A Property?
Let's say you come into a property and take it over sub-2. Let's say the person has 2 mort's on the property that are behind. Then let's say you record a 3rd mortgage on the property, catch up the 1st and 2nd, then foreclose on the property.
Sounds great...but how the heck do you do that?
What happens in the foreclosure process, who gets what, etc.
Just something I was thinking about today, not sure if I have the scenarios right or not...but figured I would through it out there.
Thanks,
Christian "The Solutions Kid" Beebe
[addsig]
I don't see why you would want to forclose on a property you already own. And if you give a mortgage to the seller for sums additional to SUB2, it would be you not paying them and they can forclose on you. I guess I am confused.
Am I understanding that you want to do this as a way to get the lenders to happily put the loan in your name ?
Or do you want to help out the homeowner by loaning him the money to make up his arrears, carrying a TD as security ?
Foreclosure varies state to state. Would love to know about Ohio myself as I want to purchase there.
[addsig]
Well, see that's my question also. Didn't mean my scenario was perfect...
Okay, so let's say you take over a home lease-option and you record a 2nd or 3rd on the home. Come to find out that the orginal owners lied to you and they are behind. So now you make up the difference on the 1st and 2nd and then foreclose since you have the 3rd right and then take over the property?
Like I said, I remember people talking about foreclosing on a property they had interest in to take it over, etc. But not sure why you would do it or how you do it or what advantages their are.
Christian "The Solutions Kid" Beebe
[addsig]
Wouldn't someone in 3rd position on a property have to pay off the 1st and 2nd position first in order to foreclose?
Let me see if I understand this correctly...
You controlled a hypothetical property via lease with the option to buy. You recorded your option which puts you in a 2nd, 3rd, etc position. You find out that the owners are behind in their payments on the underlying mortgages and are facing default.
On the left side of the field--this was a risk that you chose as an investor to take on. The classic risk vs. reward argument…
Basically what we have is a situation where you get paid last. Lets face it, pretty much in any type of REI, you get paid last! It sucks but we have two things we can do: figure out a way to move up in the line of who gets paid when OR reduce costs or such so that there is enough money to pay you at the end
If the property is foreclosed on, no matter if you foreclose or a mortgage holder forecloses, it ends up at a sheriff’s sale. The highest bidder gets the property and pays off the interested parties in the order in which the interests were recorded. Yup, that’s right...you are last in line. Seems you are in a bit of a predicament.
However, on the right side we have a lot of creative options here. The easiest thing would be if there is equity in the property. Lets say that the underlying mortgages are $150,000 and you have an option in at $200,000. You can go to the owner and propose that you have the option to buy at $175,000 or even better $150,000! You have the opportunity to purchase a property likely under market value. Hopefully your option agreement has some help for you.
The best way to solve this for the future is to insert a clause similar to mine in all land contracts or option agreements:
"Any mortgage or encumbrance of a similar nature against said property shall be timely paid by Seller so as not to prejudice Buyer’s equity herein. Should Seller fail to pay, Buyer may pay any such sums in default and shall receive 110% credit on this agreement for such sums so paid."
Yeah! You can even increase this percent. A court might not hold this up in saying that this is a pretty harsh penalty but I haven't crossed that boat yet and it certainly is leverage to get the owners to work with you!
Let me know via PM with a link back to this post if you'd like me to revisit and give more input. I think that this is a good question so please refrain from asking me qustions via PM.
[ Edited by myfrogger on Date 12/01/2003 ]
A little different here in Texas, a trust deed state. Any one of the three can foreclose. An inferior lien is what everyone calls wiped out when the superior lien if foreclosed . If it is sold to a third party or the superior lien holder bids the outstanding balance (takes it back) the inferior lien holders have the right to sue the original borrower for a deficiency judgement.
If the inferior lien holder forecloses he has either sold it or taken it back and in both cases the superior liens will have to be satisfied either by bringing them current or paying them off . They could eventually foreclose if not dealt with. This is supposed to be easier but at the same time can be complicated also. If the original trustee in the deed of trust is not available, the note holder must appoint a substitute trustee. A lot of them are attorneys but do not have to be. I have bought several notes and did the foreclosure myself as the holder in due course,
Good LUCK and HAPPY HOLIDAYS
Hope this helps some
Ted Jr
Hi, Christian
I am not sure I understand your question yet. If you have a lease option you do not own the propery yet. Under what circumstances do the second and third get put on? Are you lending the optionor money?
The issue of protecting an option is certainly valid. Your option agreement should be crafted to provide protection and penalties if the optionor compromises your position as optionee. myfrogger is on the right track, although you can customize penalties nicely for options. You can certainly have optionor show you lender statements at the time of option so you know everything is current . You can also file Request for Notice of Default. I believe here in CA this only requires recording the request with the recorders office. The form references the mortgage or deed of trust.
Does this help with your question?
Regards,
Ed
Thank you Tedjr for the clarification that what I said may not apply to some states. There are a million things that go into a situation so take everything with a grain of salt.