Advice On How To Proceed
Hello all,
I need some advice on how to proceed with a property going to auction in early June. There are three liens, a first, a second, and an IRS lien. The first is foreclosing for 140k and the second has a balance of about 49.5k. The house is currently on the market for 290k, which is still below market value.
Here are my thoughts on approaching this. Any advice is appreciated!
1) Wait it out and let the house go to auction. Bid at auction and hope that nobody else shows up!
2) Buy the second's position. I was doing some research and found out that after the initial redemption period, any junior lien holders have 10 days to redeem. If I buy the second out, what is a good ratio to offer, i.e. 50 cents on the dollar? Here's the catch, I work for the financial institution that is in second position. I want to do this without appearing to have the inside edge and possibly causing legal issues. If I was going to talk to them, I was thinking about not revealing my whole name until a deal is consummated.
3) Take this subject to existing mortgage, and short the second. I need to find out what would happen with the IRS lien.
Thanks for any help.
Junoti
You could do 2), if your company will sell the note. The redemption rights may be a good back- door way to acquire the property, although time-consuming and costly. Sounds like you would have to foreclose from your position after redeeming.
Question is, will they sell the note? They are in a pretty secure LTV position as per the numbers you state. They may not feel a need to discount, but you don't know until you try.
The fact that you work for the lien holder doesn't seem relevant since the sale is public record and thus you don't have an inside edge. There shouldn't be any reason you can't buy paper from the company you work for, IMHO.... but I'm not an attorney;
After the foreclosure, the IRS has 120 days to act or lose their lien. Not probable they will act, given the numbers on this one. You can ask them to release the lien sooner, they usually will. They won't put up the money to redeem just so they can take the property, not enough equity.
If the sellers will do a sub2, sounds like the best way to go, even if the 2nd won't short, you still would be getting in with minimal cash, and a nice margin, assuming the sellers don't want too much. Depending on the amount of the IRS lien, they may not have any equity and should be happy just to avoid foreclosure by doing a sub2 with you...??
Get the deed! Good luck!
Thanks for the great advice!
First of all, the FDIC would be all over your ass on this one.
Second of all, it is totally unethical.
I don't know what department you work in, but it must not be the foreclosure area or the legal department.
This is how it works. (in the case that the property is worth substantially more than what is owed)
The second lien holder (not you, the BANK) buys out the interest of the 1st lien holder. They then continue on with the foreclosure action. When it goes to sheriff sale, they will be out bid and thus satisfy the 1st and second lien that they have on the property. O rthey will be highbidder and then list it with a realtor for MARKET VALUE. For a financial instiution to sell an REO property to its owned employee is not an appropriate action to take.
In this case, there is so much equity available, depending on how much the IRS is due, the IRS may be interested.
If the 2nd lien holder sold its interest to you at a loss, I would think they are very poor financial institution. Not to mention you would only be purchasing an interest as a second lien position, and would still be subject to a 1st.
In another scenario where you don't have such a conflict of interest, if you bought the 2nd lien position, the 1st could go to sheriff sale and you could lose everything. There are people that make a living off of buying 2nd lien position in the hopes for proft on a bidding war at sheriff sale.
The only way for you to do this is to let the 1st mortgage go all they way to sheriff sale and be high bidder at sheriff sale, and then know that after you are high bidder, there is still a timeframe for the IRS to come in a take it.
I would also anticipate that these people would drop their homes listed market price substantially as it gets closer to sheriff sale, maybe even to a break even point on their debt/like selling it for what they owe.
Usually when something seems to good to be true it is...