Carrying A 2nd Mortgage

I want to dabble in carrying paper, but am a bit nervous and a lot uneducated. We are starting to rehab and want to offer a seller-financed 2nd mortgage at the time of sale. What happens if the new owner doesn't pay the first mortgage? I know I need to record a Notice of Default (?) at closing so the first lien holder will notify me if the owners stop paying the first mortgage, but I have heard that not all primary lienholders will oblige this request (?)

My other question is, what if they pay their 1st mortgage ok, but stop paying the 2nd I am carrying? What happens if they declare bankruptcy?

Any ideas on web sites and/or books, etc that cater to "Carrying Paper for Dummies?" confused

Comments(2)

  • CarolTheGreat4th December, 2003

    The primary lender is required to notify you even if you dont file a request for notice, but the request for notice requires that they tell you sooner. You can also file a request that the primary lender notify you if the primary loan gets 4 months behind, regardless of whether they have filed a notice of default. You need some cash on hand in case the primary lender files. In that cse, provided that you want your money, you step in and pay the arrears and keep it up to date while you file a foreclosure on your second. That takes 4 more months. Then at the sale you get your money plus the payments you have made on the first, assuming that there is enough equity in the deal.

  • JohnMerchant4th December, 2003

    You've touched on several separate issues.

    First, with today's interest rates and easy money loans, you can probably get cash out if you prefer.

    Second, if you do want to carry a 2d note, be sure you get good credit buyer, good down payment he's reluctant to walk from, and don't overfinance the property...e.g. if the RE is sold for $200,000, take $20,000 or more in down, have him get a 1st for as much as he can, so your 2d isn't all that big...then, if you do have to take it back, by foreclosing on YOUR defaulted note, you can go get new loan to pay off the old 1st.

    And before you take that 2d, put it, hypothetically on one or two of the note websites and see what the "market" thinks of your note...you'll soon learn if it's any good, or not so good, by the offers you do or don't get on it.

    I occasionally peruse those sites and see some real junk, where the seller really got stupid and took a lousy 2d, way too little down payment, from a poor credit buyer who IS going to default sometime down the road.

    And the poor seller finds it's WAY too late to try to rectify the situation...he IS going to have to foreclose, or watch the bank foreclose and maybe unable to buy the bank note because it's so big.

    And he's found by then that HE is the greater fool under that theory, and he was unable to find a greater one to buy that crummy note.

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