I Have A Lot Of Working Capital... Best Method?
Hi all,
I am a realtor in CO, and I do know a bit of the foreclosure process... in THEORY! I have never actually gone thru the entire process.
Here is my situation: I have an investor w/ $500,000 in cash to play with. Really! My thoughts were to buy junior liens at a dicount, after sale, with intent of buying the superior liens ahead of us, provided obviously that there is profit margin. When our time comes to redeem to the other liens before us, we would just buy them out and own the property. If we get bought out by junior liens behind us, then we still profit, because they would have to pay us the face value of the note, right?
For example:
A property has already gone to sale.
It comps out at $200,000.
There is a 1st lien at $150,000
A 2nd lien at $25,000
A third mechanics lien at $5,000.
Disregarding any fix up costs, if we were to purchase the 2nd lien, after sale, at say, $10,000, then it should be win-win, right? If no else behind us redeems, then we own the property for $160,000 plus fees & interest. If we get redeemed, then we make a quick $15,000, right?
I just want to make sure I'm on track here.
By the way, our owner redemption period here is only 75 days total. We could bid at the sale/auction, but that would tie up our money for a longer time. We also don't have to deal with any home-owners at this point.
Last question... when buying a bank note and having it assigned to you, do you do it thru a 3rd party, like a lawyer, to facilitate the purchase? I'm assuming that you don't just mail them a certified check and wait for the note to come to you.
I appreciate your help!
GREAT SITE! IT'S A WEALTH OF INFO!!! 
About this investor.....
What is his/her risk tollerance?
In what way do they want to be involved?
How much time do they want to spend on RE?
What are their goals? (CF, equity buildup, quick profits, security, tax shelter?)
This is a very broad question without knowing much about this investor. He could become a HML or traditional lender. He could put 20% down and buy 2.5 Mil. of something, he could go into tax liens, preforecloseures, foreclosures, distressed properties, commercial, residential, ministorage, etc . The list goes on.
Tell us more about them, their goals, and thier interests and we'll be able to give much better advice.
Those are fair questions. I guess I could have been more informative.
Our (yes, we're partners) goals are twofold. We have an LLC which will buy and flip the properties, ever increasing our profit. We can buy many at one time, if need be. We are not delving into commercial props. 4-plexs & under only.
For the most part, we want quick turn arounds on these properties.
We will keep some as rentals, however, if they are cash-flowing very well rental-wise.
We will pay cash every time. If we keep it as a rental, then we will mrtgage 80% back out, freeing up cash, but eliminating PMI.
I don't think we want to mess w/ tax-liens here in CO. It ties up your money for about 3 yrs. I do have a grasp of foreclosures, HUDS, VAs, and of course deals on our MLS. I'm not afraid to talk to people, but it would seem easier, and take less time to just buy junior liens for cash, redeem and then flip again.
Of course we are always worried about risk, but this seems to be pretty low risk. If we buy a junior lien, we know we could end up buying the whole house, and that's fine! We only buy if it's a win-win, either getting redeemed or owning.
I hope this gives you more insight into our plans. Thanks for your responses!!!
If your investors is still looking for property I have one that might be of interest to them. My 2ed deed of trust is scheduled for foreclosure sale July 30,2003. It is on a beautiful 34 acre property north/east of SanDiego CA. Let me know if you are interested.
[addsig]
I appreciate the offer, but we only buy in CO. thanks
i am in TX, and I understand that here, the 1st can foreclose off all others at the court auction. So the seconds all become worthless on that day.
[addsig]
I am an investor in Colorado, and do exactly what you are contemplating. It works well and is very profitable. When Purchasing notes I have always found that large banks generally have a local office and I only pay them when I can immediately get the assignment. This has never been a problem. Another option is to upon acceptance of your offer set up an escrow account with a local title company and have paper work sent there, at which point they will release the funds to the bank. This is inexpensive and could possibly save you thousands in the future.
I only do this on Post sale properties because if the owner cures the first you may be a bank for 20 years. It all depends on your financial goals. I agree with you on tax liens in CO.
To Kotis:
Thanks for your input.
I know that that is not the case in CO, that the 1st will wipe out other liens. Just to be sure, I would recheck your info, because why would a bank EVER put a 2nd on a home in TX if they have a chance of just being "wiped off?" Something doesn't sound right, but I would like to be updated with any new info on that topic.
Thanks again!
To Shawnk:
Yes, a local office would be very helpful in acquiring a note. And yes, I would only buy it "post-foreclosure" for your same reasons.
The challenge I am finding w/ title companies is that the ones I deal with (so far) will not just hold money for your transaction, and help the situation. They almost won't do anything unless title insurance is involved. Maybe I need to ask other ins. cos. By the way, it is Chicacgo Title who claims that I should get a lawyer to handle the entire deal.
I REALLY appreciate everyones input so far!
Are there other investors who agree that this would be a fairly easy and low-risk way of acquiring a property?
I can not believe Chicago title will not help you I have used them for years. Maybe look up escrow companies in the phone book.
In Colorado junior liens are wiped out unless they excercise their right of redemption. Which I understand you intend to do. I would never buy at the auction. You are putting money up for at least 75 days, and if there is enough equity in the property you will more than likely be redeemed out allowing you to only collect the note rate plus minimul allowable charges. Most people who I see bid at the sale are looking for this more passive type of investment and rarely end up with the property.
As for Texas, they are a mortgage state in which if a junior lienor wishes to protect there interest they must bid at sale. This along with much shorter redemption periods creates a much more competitive atmosphere at the sale.
We are lucky to be in Colorado where we have many more options. Be aware of the changes that were made last year requiring all intents to redeem including owners to be filed by the 60th day. Title 38 section 38 of the Colorado Revised Statutes has all of the foreclosure laws.
good luck
I've heard of other people in CO with this same type of investment strategy. I don't know about TX, but here in WA there is no redemption period. This can be a very good thing for buying at auction, except that you can count on stiff competition from junior lien holders that will be bidding on the property.
The WA state revised code on foreclosures indicates that proceeds beyond what pays off the foreclosing loan is transferred to the county sheriff who then pays off all junior lien holders, in order, and the excess of that goes back to the owner.
This may make it seem as though banks would never want to put a second on a house, but the actual result is a lot of REOs. I can see the advantages and disadvantages of both systems.
Thanks fo the reply!
Yes, it is odd that every state can be so different. That is nothing like it is here in CO.
I appreciate everyones input!!!