Discounting 2nd - Advanced Question

Comments(6)

• 
  compwhiz3rd May, 2004

  Kevin,
  
  I am assuming you are talking about Illinois, since we are a judicial foreclosure state.
  
  You really need to explain what do you mean by
  
  "foreclosure has been completed (but not auctioned), "
  
  In Illinois, I can only interpret it three ways:
  
  - 1st has obtained a judgment of foreclosure and is awaiting the statutory period before it can schedule the property for the auction
  - 1st has received a deed-in-liue of foreclosure(HIGHLY doubtful given that it's a VA loan and also the fact that there is a second lien on the property)
  - 1st has given the homeowner some sort of forebearance.
  
  I highly suspect it's the first or the third case. Either way, original second sold the note to someone else, probably at a substantial discount as well. Now you're trying to buy that note from that servicer @ an additional discount. Might be very hard to do. If you post more details, I'll be happy to give more complete and accurate answer, but it's hard to do with the details you provided.

• 
  KevinIL3rd May, 2004

  1st has obtained a judgment of foreclosure and is awaiting the statutory period before it can schedule the property for the auction
  
  This is correct. The second is now owned by a new servicing company. This company rejected my offer and said they'd wait until the auction. The original owner of the 2nd did not respond to the foreclosure complaint and was dismissed. On the court file it says "Rem Defendants Defaulted". If the remainder defendants defaulted does that automatically extinguish their ability to get a deficiency judgement. Other than bidding at the sale, what rights does the second mortage have given the above info? thanks

• 
  compwhiz3rd May, 2004

  Kevin,
  
  Good to hear that I was on target with my # 1 guess. I am not 100% sure if being defaulted automatically extinguishes ability to obtain deficiency judgment. However, I don't see an opportunity to obtain a deficiency judgment as a significant benefit to a creditor. If they couldn't collect on the house debt, how can they collect when the collateral used for that debt goes away? Anyway, it's not important.
  
  This all depends on the particulars of the situation. The second can file a motion to prove-up their position and join the first in the foreclosure action. This means that they can bid up the full value of their lien at the auction without putting up an additional penny. That's the smartest thing to do. Or they can wait until the last minute and hope that the first mortgage default is cured by some miracle. If it's not, they can pay off the first mortgage - now they're in the first position - and start their own foreclosure proceedings. Or they may have started them already, if they are smart.
  
  If you want to post some #s about the situation(FMV of the property in current condition, amount of 1st judgment, amount of 2nd mortgage, and whether the homeowner is in default on the 2nd as well as the first, I may attempt to provide better suggestions for your options.
  
  
  Quote:
  On 2004-05-03 15:59, KevinIL wrote:
  1st has obtained a judgment of foreclosure and is awaiting the statutory period before it can schedule the property for the auction
  
  This is correct. The second is now owned by a new servicing company. This company rejected my offer and said they'd wait until the auction. The original owner of the 2nd did not respond to the foreclosure complaint and was dismissed. On the court file it says "Rem Defendants Defaulted". If the remainder defendants defaulted does that automatically extinguish their ability to get a deficiency judgement. Other than bidding at the sale, what rights does the second mortage have given the above info? thanks

• 
  KevinIL3rd May, 2004

  Thanks for the quick reply. Here are the numbers:
  FMV= 89k
  Repairs = 1k (excellent condition)
  Property Taxes = $3500
  1st Mtg (VA) = $71k
  2nd Mtg. = $30k
  
  By my estimate the 2nd would have to redeem the first at $71k and then sell REO. After realtor fees, holding costs, etc. they'll net $7-8k max.
  
  i have comps for properties nearby that sold for $70-75 as foreclosures with same number of bed/bath. Given my local market and the excellent interior condition I am confident it will bring $89k. A short sale on the first mortgage won't work...they're pretty safe. So my profit needs to come from a discounted purchase of the 2nd. Any ideas?

• 
  compwhiz4th May, 2004

  With these numbers, it certainly looks like 2nd will make money if they know what they're doing. It goes something like this:
  
  2nd proves up their mortgage in court for $30k. The house comes up for sheriff's sale. They bid @ the sheriff's sale, but they only need to put up whatever less $30k to bid @ the sale. They get the property at the auction, resell it, and if it's really in excellent condition, make up the difference between what they paid for it at the auction and the sales price, less selling expenses and amount paid for the 2nd lien.
  
  Based on these numbers, you need to completely wipe out the 2nd mortgage in order to make money, and from you description, it doesn't look like they want to do that. IMHO, paying 2nd mortgage more than a few grand makes this fairly unattractive deal from investor point of view. Good luck dealing with the 2nd, but I wouldn't get your hopes up on this one.

• 
  KevinIL4th May, 2004

  Compwhiz - Thanks for your help. Looks like the 2nd is now willing to consider my discounted offer ( seriously discounted!). The HO called the 2nd mtg and explained that they were unable to stop the foreclosure and didnt care what happened to the house. Now the 2nd is looking to deal!