Is Creating 2nd Note Too Risky?
I have received a phone call from this guy who is behind in mortgage payment. He needs about $4100 to catch up. He is claming he now has a job and would be able to keep the house if someone let him borrow $4100. I was thinking about creating 2nd note secured by his house.
What can I put in the contract/note so that we will be able to have option to buy his place before the house goes into foreclosure.
How much interest on the 2nd? (I live in AZ)
Thank you very much!!!!
I would advise you to pass. With any second mortgage, you must go through the foreclosure process to get the house back. You could make some sort of side agreement but those are not legal and will not hold up in court.
I don't know what AZ's usury laws but even at 18% or so, that isn't enough for me.
A better route would be to work an agreement out with the lender for a fee. I think $1000 to $1200 or so would be sufficient. There is only a few hours of work in doing this.
GOOD LUCK
Absolutely, this can be done. 2nds are created all the time. If you should create a note in this case depends largely on several factors, such as how much equity there is and owners ability to pay the loan.
If there is enough equity, you are protected in case you have to foreclose. Owner's ability to pay is selfexplanatory.
As far as interest rate, I know in California it's common to charge 12% for loans such as this.
I am not however clear as to what you mean by having an option to by the place.
No comment on if this is a good deal or now.
Focusing on the minor point about having an option to buy the place.
If you are in 2nd position and the 1st is in default you have the right to bring the 1st current and then start foreclosure on the 2nd. The logic is you are allowed to protect you position by curing the defaulted 1st. The lender on the 1st can not exercise the DOS.
Hence if you are going to do this deal you will need more money to bring the 1st current and pay for a foreclosure process. Figure in such costs when thinking about this deal
John
[addsig]
I suspect most experienced REIs are very skeptical of these "let me stay in the house" deals, because so many go bad.
The owner's situation really hasn't changed, and the new 2d is just a band-aid over the problem.
Also, not only does the new 2d lender have to foreclose his note, or buy the 1st and foreclose on it, or at least keep it current...he also has to then file eviction to get the dead-beats out of the house...which they are still trying to hold onto and fighting to stay in.
Quote:
On 2004-10-16 11:01, JohnMerchant wrote:
I suspect most experienced REIs are very skeptical of these "let me stay in the house" deals, because so many go bad.
The owner's situation really hasn't changed, and the new 2d is just a band-aid over the problem.
Also, not only does the new 2d lender have to foreclose his note, or buy the 1st and foreclose on it, or at least keep it current...he also has to then file eviction to get the dead-beats out of the house...which they are still trying to hold onto and fighting to stay in.
I would disagree on one point you made, if there is enough equity in the house, there is need to worry about eviction. With enough equity the house, most likely will be sold at the action.
The reason investors do these, is because they get maybe 12% return, and even if they have to foreclose, if there is enough equity, they will get all their money back + interest.