"Charged Off Lien???"
For those of you who read my previous posting of "... a lot of capital...", you'll know that I plan to purchase junior liens at a discount, after sale, and buy out any and all senior liens, then flip the property. I'm not "short-selling".
Well, I began the process on one, and it was so easy! Almost... too easy!
Here is the situation:
1st lien bid at sale at $177K.
2nd is w/ Bank One for $50K
Home is worth, worst case, $230K
I called Bank One, and got transferred to 4 different people before I finally got to the guy habdling this case. The 3rd guy perhaps "let it slip" that the loan has been "charged off".
I told the final guy that I was looking to buy the lien outright, and without flinching, he simply asked what I'm looking to offer. Since I was expecting them to fight me more, I blurted out $7,000, for their $50K note (yes, $50K is still due). He said OK! Just put it in writing and fax the offer to him, and he'll see what he can do!
Now... if the loan is "charged off", have they written it off already? I already know I will offer even less, maybe 3K, for this note they seem not to care about.
Anyone ever heard of this???
Thanks for your replies!!!!
Congradulations. Usually when a mortgage is marked charge-off it means the debtor probably has filed bankruptcy (not unusual for people in foreclosure) leaving the bank only with the security in the property, which will do them no good unless they opt. to redeem.
Paying $7,000 + $177,000+ plus post sale interest and fees with a property value of $230,000 you would be paying over 80% FMV
before any fix up and holding costs. Certainly workable but not necessarily the best deal. I think you learned a valuable lesson by maybe starting lower on your initial offer, banks will think your trying to play games when to start lowering your original offer, you can always go up. I usually do the math ahead of time, present the numbers to them so they know where I arrived at my offer.
I, too, am an investor in Colorado. One question about this technique in acquiring property - How do you typically gain access to the property you are wanting to purchase? Since the homeowner doesn't have to move out until the redemption period expires, they often still reside in the home until the 75th day. Since this isn't a pre-foreclosure short sale, I'm assuming you aren't working with the HO, but rather just with the junior liens and ultimately the first.
I'm also assuming that you aren't buying these homes sight unseen. Do you look for vacant properties or do you contact the homeowners and try to work something out with them? Just curious...
Brian Dawson
You have the right idea.
Yes, I am not dealing with the homeowner at this point. However, you could contact the homeowner, tell them you are trying to resolve their situation and save their credit, can you come over to talk about it? That's not really deceptive, because maybe you will end short-selling the home instead, in which case you NEED to be in contact with the homeowner.
Another option would be to offer them $100.00, or so, to come in and check out the home. A little riskier, but may work.
Then... there has been the time that I happened to find a back door unlocked, and the property was already vacated.
It's your call at that point. Maybe notify a neighbor that you're going in that back door, to make it look legit.
I hope that helps! Be creative, but legal!
I appreciate the response! Is the idea to approach the junior liens on the 61st day of redemption? I understand that if the HO has not filed his intent either to cure or redeem by the 60th day, then he forfeits his rights to such actions for the last 15 days of the redemption period. If you are the holder of the certificate of purchase, the HO would have to appeal to you to restore those rights (the phone calls for which would go unreturned ) and your redemption would go through.
Also, is there a way through public records to identify HOs that have filed BK? If not, how else would you know if teh House was attached to a BK? If you tried this technique without contact with the HO and the house was attached to a BK, you could work out a great deal only to have a judge nulify your efforts in the end.
If you're ever in the Boulder area and want to talk REI, drop me an email. I'll buy lunch.
I'll take you up on that lunch!
In answer to your queries...
Do NOT wait until day 61! All lien holders MUST file an intent to redeem by the 60th day in CO, so, by day 61 all the players are known and set. No exceptions. So, if you're going to buy a lien, do it BEFORE day 60, and then file your intent to redeem. You are now a player in the redemption game.
As for BK, that will only postpone your right to redeem. You will not be wiped clean by a BK. Usually it will postpone your right to redeem for about 60 days. Verify this with your local Public Tustee office, but I'm pretty sure that's how it works. Let me know what they say!
Thanks for the info! I didn't realize that the holder of the Certificate of Purchase had to file their intent as well.
NoNO... Sorry!
The owner of the COP does not have to file. Only junior lienholders need to file an intent to redeem.
BK affects all liens in the same manner, however.
Sorry if I was not clear.
That makes sense with the juniors. I assumed that winning the bid or having the CP gave you the right to redeem.
So, if you wait until the 61st day, you will know what cards the HO and any juniors hold. Either they've filed to redeem/ cure or they haven't. If a junior hasn't, does that provide you with more leverage in dealing with them? Do you even need to deal with them at that point or have they missed the boat on recovering their losses and the property and will simply go away on the 75th day?
Thanks for taking the time to help me understand all of this! I really appreciate it!
If an intent to redeem is not filed by the 60th day by a valid lienholder or the owner, that entity is wiped off the books. They no longer have ANY claims to the said property.
Bottom line is that you will know ALL players by the 61st day.
What's the advantage of getting a discount on the 2nd, then? If they've missed their chance by day 61, why pay them prior to that date for the note? Is the only reason to give yourself an insurance policy in the event that they would want to step up and acquire the property?
Thanks!
If you HAVE to HAVE that property, then you want to buy that junior lien for as low as u can get them. That gives you guaranteed redemption rights to the property. But you must file your intent to redeem by the 60th day, therefore you must buy (or assign) that lien before day 60.
Worst case is that there is another junior lien behind you. Good! If you bought a lien with a face value of $50K for $10K, then the junior lien behind you must pay you $50K!!! (If they want to redeem, of course) Because that is what is legally due! You just made $40K in one week! Not bad!
I was looking at it from the angle that you could simply purchase the CP on the 61st day after all has been wiped clean. Now I can see where there would be some nice advantages to negotiating with the juniors.
If the HO was to redeem, they would owe the amount of the highest bid + fees. Does your newly purchased discounted note become the new 1st at that point or does the HO have to pay that off too?
To answer both...
Yes, you can negotiate with the 1st (or COP holder) at any time, really. Wether or not they will sell to you at a discount is another story.
I prefer to wait it out and negotiate w/ a junior lien, that way your money is not tied up for so long during the redemption period.
The 2nd, or junior lien, will never become the "1st". If the HO redeems, he must pay off ALL liens at their face value. You will still make $40K!
That's the $1,000,000 answer right there. It makes all kinds of sense, then, to negotiate with those lesser liens. If they have to be paid off as well, then you want as many discounted notes as possible. You can still file for redemption, but, unless the property is a real gem, you're hoping for redemption by the HO.
I truly appreciate you taking the time to educate me on this subject. Until now, I've only looked at deals that were in the pre-foreclosure stage. Isn't it great when your focus expands to encompass a new area?
Thanks again,
Brian "No longer wondering what I should do with the line of credit I have" Dawson
You're welcome!
By the way, never hope that the owner will redeem... that is rare, once past sale.
Good Luck!
If homeowner redeems they need only pay the amount due the holder of the CP. If you had a second and owner redeemed you would become the first because the original first has been paid off. (happens rarely because if the redemption funds are financed the new mortgage holder would not want to be subsequent your position.)
thanks Shawn,
I didn't know that. Perhaps then, it would be best to wait until the last minute to close on the junior lien buyout, to see if the owner will file an intent to redeem, or not. But I do realize that the new mortgage would not to be subordinate to me. At the very least, i guess you would have a new income stream (the purchased note), or you would soon have the right to foreclose as well, am I wrong?
I asked my attorney and public trustee about this same thing. I was told that the HO doesn't technically have to redeem the second at the time they redeem the first, but it almost always happens as the new loan that the HO takes out will not want to be subordinate to the junior. Unless they come up with cash for the redemption, they will most likely pay off the juniors.
great info. thanks!!!