2nd Note Risky Business?
I have the opportunity to purchase a delinquent note at a discount. I have a counter offer from the 2nd note holder.
By chance I found out that the property is to be sold in the next 30 days.
So I am very interested - it could be 300 - 500% profit.
However, what is my recourse if the sale were to fall through & I'm left holding this note & the 1st mortgagee takes it to auction in October?
Consider 2 possible options, try to use your "inside" info. to your advantage.
Offer a option to purchase the 2nd for
a specific time frame, at a specific price
and offer the owner a fee- for the right to purchase.(just as in the options mkt). 2nd, try to offer "subject 2" for the note.
Just a few ideas, Mark
There is a bigger picture which you may or may not know about. Can you try to purchase the property? If the first is somewhat low and you can buy the 2nd at a steep discount, you may have yourself a deal.
Or you may be able to short the 1st also.
You do realize that if the property goes to sale you may never get your money? You should have a plan in place.
We need more info on what you're planning to do here.
GOOD LUCK
It is a bit scary how you describe things. I mean that your lack of knowledge could cause you to make some bad decisions.
Moving past that (you are at least asking for help).
If the first successfully forecloses, the second is wiped out. Even if someone pays more then the 1st is owned, nothing will go the holder of the second.
The holder of the second has to take steps to protect their interest. The simplest way to do this is for the 2nd to bring the first current and then foreclose for the default on the first.
You could be looking at a really good return if the sale goes through. Or you could be looking at a good return if the sale falls through and you bring the 1st current while you foreclose (at least that is what you implied).
If you have the cash to buy the second and then protect it I would say you have a green light. I would recommend a lawyer to help with the legal process.
You can also send some letters to folks like the soon to be ex-wife. She might not realize just how much this will mess her up for years to come if the foreclosure is completed. Even when she is divorced and finds someone else she will be taking the bad credit into the new relationship. That might motivate her to protect her interests a little more.
As we are both in OR I can recommend a good RE attorney. I use him for my OR deals when I need a lawyer. He is a member of the local RE investment club and knows his stuff. As he is in Lake Oswego he is only about 45-60 minutes north of you.
I like the smell of this deal but I do not know all the facts. You have to be hard nose about sticking to your position and knowing your rights. You want a clean title so no short cuts if it means that there could be a problem with the title later. Hence be prepared to foreclose after curing the first and make sure you complete the legal process to obtain clean title. It very likely will not go that far but have the cash read in case it does. Also assume that you might find repairs are needed if someone gets pissed off and tears the place apart. I have seen all fixtures and fittings torn out (including the plumbing) just so they could piss off the soon to be ex. I saw the place after the lender got it back in foreclosure.
John
[addsig]
John,
You wrote:
"If the first successfully forecloses, the second is wiped out. Even if someone pays more then the 1st is owned, nothing will go the holder of the second."
Is that correct? In Illinois the 2nd mortgage holder would get the overage. Where does that money go?
Mark
Oh, other than that I thought your response very helpful.
[ Edited by commercialking on Date 09/12/2004 ]
In California, whatever left from the 1st would go to second. I believe.
Sam
An overage above the 1st would go to the 2nd mortgage. An overage above the 2nd would then go to the 3rd and so on. And finally an overage above the last lien goes to the homeowner.
Plan on 6 months in Oregon for a foreclosure, it is possible something could be done sooner but frequently things don't go smoothly.
I am in the same boat, looking at a heavily discounted 2nd to take over a property cheaply
[addsig]
just remember "if there is no venture theer will be no gain"
Mark (and others who posted similar),
My mistake. I do believe you are correct.
John
Quote:
In Illinois the 2nd mortgage holder would get the overage. Where does that money go?
Mark
<font size=-1>[ Edited by commercialking on Date 09/12/2004 ]</font>
[addsig]
One more thought, if the profit is high and you have very little cash to cure the first. Here goes, buy the second, negotiate with the first for a forebearance agreement to postpone the sale, make small payments to keep the first happy, start your own foreclosure sale. Work with the owner of the property and sell him back the note at a profit to you or work with him to sell the property for a discounted payoff to you.
One more, assuming the profit is high, option the note for 7 days, Joint Venture with a money source. Buy the note for pennies and mark it up to the money source. Quick cash return for you and little or no risk to you. In and out quickly.null