Buying The Second?
I was looking into buying seconds that was in default as a way of "backing" into the house or maybe buying a lien or judgement that might be on the property. does anybody have any ideas on the subject?
the only problem with that is you buy the second at a deep discount since the 1st is foreclosing...but the 1st forecloses and get's the house back at the auction, your 2nd lien is now wiped out and you get nothing....this is just one downside and there are still many upsides
can't you bring the 1st current and stop the forecloser process and then foreclose the 2nd?
Yes you can. That is how I do my foreclosures. I try to discount the second position, then reinstate the first. On that same day, I start my own foreclosure. Here is Southern California, the properties that eventually make it to foreclosure are bid up to 90% of FMV. If I remember correctly 87% of the homes in foreclosure are either sold or refinanced before sale date. Therefore, if you do this right, you have almost a guaranteed profit.
if you foreclose from the second position, the first doesn't get wiped off, you get the property subject to the first you still either have to pay off the first or continue making the payments...
True, but there should be substantial equity in the property or you wouldn't get involved. Refi to get cash out and hold, hold as rental or sell.
how can you discount the second, buy it, have the first foreclosing, then you bring that current, then you foreclose???
What rights do you have to foreclose if you haven't had any defaulted payments on your second that you just bought, and the second lienholder wasn't even foreclosing in the first place?
This is in the case of the second NOT being in default. Seems corrupt to me.
Maybe I am missing something...
Quote:
On 2004-04-02 21:22, hornett wrote:
I was looking into buying seconds that was in default as a way of "backing" into the house or maybe buying a lien or judgement that might be on the property. does anybody have any ideas on the subject?
This is also a good way to acquire houses subject-to buy the 2nd at a deep discount bring the 1st up to date and buy the house subject-to the existing financing. Give the owner moving money to leave and X$ when your buyer refinances and cashes you out.
DAVEHAYS...A junior lein has the right of protecting their interest. A foreclosure by the first would wipe out that interest. The junior lien has no choice but to reinstate & foreclose to protect their own interest...so, they may make a profit by doing so...but again they may not...best regards, C.Walker
Slow down, you are onto the correct approach on a fast climbing oh my god market like today.
As you know at most foreclosure sales the frenzy has begun and the bidding is now above what the pros will do. It is in many cases over the 100% mark. I have seen some obviously unqualified bidders going over market. Fun to watch but from a distance.
When this situation exists you can if you like set one up and make a profit, or if you are straigt you merely negotiate the purchase at discount of the second if there is one. I have bought them as low as 10% on the dollar. So many holders of the seconds are not in a position to protect themselves from a foreclosure from the first. Most were take back at time of prior sale what we here in Calif call PMTD's Purchase Money Trust Deeds. When I see a foreclosure I always check title to see if there are any junior liens and then I attempt to buy them. I attend the sale and qualify to bid. I then join in, knowing as we go up that I can recover from the final bid all that is due on my second. Or if the bid is short I merely pick up the overage bid. Soooo that is one way to play the game. I like it cause it is sort of fun to have the Trustee send you a check for the overage bid above the first trust deed that was foreclosing.
The other way is of course merely to make up the past due payments and costs and retire the foreclosure of the lst. You then start your own. Why? because there is now a default situation as you had to advance and cure the prior foreclosure to protect your note and deed of trust. This you are allowed to do and is so written in the instrument of Trust. My suggestion is if you do this you might consider substituting your own Trustee in to run the sale for you. This way you can hold your costs down and if you are very clever you can participate in those costs.
In any case with any luck you end up with the property and with very little luck you end up with all the money due on your second trust deed, plus of course the costs of your foreclosure. Sort of a win win game.
And that dear friends is how to play the game in our present highly temporary run away market.
At least this time it is not just a Californian thing. It seems to be the norm all over the States. Relax it will change, it always has and when that happens we will swing the other way. There is a downmarket way to play the game also.
You must remember this is a very select bunch of people, they are called Real Estate Investors. They function in up and in down markets. There is a profit in both, just a small change in structure. Also its a lot of fun.
Enjoy, Lucius
8-) 8-)
Thank you for your detailed explanation. Although I do it, i don't think I could have explained it as well as you did.
Lucius' post is, as always, a model of clarity and good humor. But I'd like to add one thing. By purchasing the second (again at a discount) you have put yourself in a position where you have an equitable interest. Now the first mortgage holder is much more likely to negotiate with you. Go to their attny, point out your position. Offer to purchase the first at a discount. If they say no you have recourse to all the delaying and obstructionst activity which th owner could engage in but generally doesn't know how. Get a good attny. Renew your offer to purchase at a discount at each court hearing. Eventually you will either wear down the first (usually doesn't take that long once they realize what you are up to) or get to the point where you must re-instate the mortage to keep the game alive.
One other thing to keep in mind is that if you have purchased the 2nd at discount and Homeowner has decided to file for a bankruptcy after that, then you may be facing a freezing of your precious money for a while and will need to keep paying 1st to prevent them from foreclosing. On a long run you still win since you hold an equitable interest in the property
Dmitry.
This may open a can of worms, but what what are the legal requirements for the creation of a secondary lien?
If the first is foreclosing and there is not much time to move on a short, can you record a secondary and then overbid the auction?
do you think you could get a larger on a private note holder or a judgement like a mechanic's lien?
I too, would like to hear feedback on BIGWAVE's question!
Hornet,
It occurs to me as I review this thread that all the posters have made assumptions about the situation that were not actually in your original post and that the question you originally asked is quite different. May I attempt to re-state your original question?
You are interested in buying liens on properties where you belive there is equity in the property. The first mortgage and indeed, even the junior leins you are attempting to buy may not be in default. Is there a way to make money on this type of investments?
Yes. If you buy them at a discount, accept that collecting the money will probably cost you some legal fees and are prepared to be looked upon as somewhat underhanded.
I once went about buying mechanics leins against a guy I knew had a habit of not paying people. His properties had lots of equity. Each lein was small enough that by itself the legal fees to collect were prohibitive. But when wrapped together the legal fees as a function of the whole were much more reasonable. Now Mr Deadbeat was much more willing to pay the bill because he saw that I would foreclose on the leins economically, we settled I got paid. Since I had bought the leins at a considerable discount (one guy gave me his lein for free if I'd agree to attempt to collect just to give Mr Deadbeat a hard time) I did ok. Plus I really didn't like Mr. Deadbeat so I had a good time.
one good point mostly neglected is bankrupcy. Make sure you have cash contingency to wait it out.
BUT, yeah, I've found that calling lenders and requested problem seconds have pointed to diamonds in the rough. a second wil threaten and threaten to foreclose but never actually will. Some homeowners are savy (stupid) enough to know that and continue to pay their first and neglect their second - those are the guys I want to go after!
you buy the note cheap, foreclose on them, evict them ( with small cash consideration for a clean and timely move), find your buyer and CASH IN!!!!!
another point well said by lucious was - run your own auction!
appoint your own trustee. someone soft spoken who will sit in the corner and avoid the masses
The affadavit is their only proof.
when asking the lenders about the problem second are how willing are they to do buisness?
I thought an overage at an auction went back to the homeowner but from this forum it sounds like found money.
If I buy a second and forclose I am required to pay off the first then what happens to the rest?
Are you allowed to keep it all?
Thanks in advance
JohnNH
John,
Any overage is used to pay the next junior lien. If there is no junior lien and still an overage it goes to the previous owner.