Short Sale Pro--Buying The Note
I'm in a crunch with a VA loan. The house has a 1st and 2nd and the 2nd has agreed to short. However with the 1st being a VA, as you know they will only take 12% off appraised value. The existing mortgage is less than what that figure will probably be. Could I just purchase the 1st note and then foreclose the 2nd? If so how?
Jim
I don't think that you can buy the first mortgage since you are not a VA approved lender/servicer.
You'll have to 1) work the appraisal so the value is the lowest possible, and 2) work the second mortgagee for the highest possible discount.
SSP--
Thanks for the feedback. That was my gut feeling. BTW--What is a best case scenario for buying the note?
I know this question is going to sound crazy. When working with most folks in foreclosure our goal is to help them salvage their credit. In a circumstance when you purchase a note from a lender what do you do then? For example, say you buy a note for $85K on a house worth $100K. Do you just go ahead and sell the house wiping out the $85K note and pocket the $15K? If the sellers can't pay the mortgage you purchased how do you handle it? Especially since they wanted your help to save their credit?
Hope all that garble makes sense. If it doesn't, I'll try to rewrite it another way.
Jim
Interesting dynamic. On one hand, you want to help the distressed homeowner, but to maximize profit you reach a point when helping them is in conflict with your interests.... tough to have it both ways.
It's probably best if the homeowner didn't know that you were buying the note
SSP--
I don't think I'm conveying myself as intended. In no way would I try and deceive the sellers to max profit. Actually, I ran the idea of foreclosing the second and purchasing the 1st (before I knew VA was involved) across them and they were fine with it. They said, "Whatever works. We were ready to get foreclosed on both anyway."
I guess what I'm trying to ask is in what circumstance should you buy the note and then after you buy it, what the heck do you do? Do you purchase the house from the sellers for the price of the note you took over from the lender---then you own the note and the house (that's weird)? If you actually own the house then you could just sell it and pocket the spread of the note and selling price.
Am I thinking irrationally?--Jim
Sign a power of attorney with the seller and have them sign over a warranty deed and a quit claim deed. Payoff the 2nd note after you short sale them and market the home.
Take the power of attorney to closing as well as the deeds.
Check will be written to them but you can endorse w/ the power of attny
good luck
joe
Tanis--
Thanks a bunch for your feedback. The problem with this scenario without going into too much detail-----I need to foreclose the second and takeover the 1st or buy the note. The 2nd will agree to short from $58K to $15K. However, take this on top of the first (who isn't willing to short) and the spread is very thin. If I could completely knock out the 2nd then we'd be OK.
The sellers took out a $125% 2nd and the debt is high.
Any thoughts?--Jim
Offer the second $5,000 to purchase the note via an assignment.
SSP-
Would the 2nd have any motivation to take the $5K to assign the 2nd? Reason I ask, they were adament about $15K. If any less they would foreclose themselves and collect more than $20K at the sale. I always thought it would be the 1st foreclosing thus wiping out the second?
Sorry about being dense on this. I've got the shortsale thing down but when it comes to something a litle different I'm back to scratching my head.
Jim
You haven't indicated the FMV.
You haven't indicated the first mortgage payoff.
You've indicated that the second is for $58,000, but they would accept $15,000, and if they didn't get $15,000 they would foreclose and pocket $20,000.
Please fill in the blanks.
SSP-
FMV is approx. 195K
1st is at $168K
2nd is at $58K shorted to $15K
Yes there is some profit but I'm not overly comfortable with only $10K or so. This is why I'm looking for options on the remaining $15K.
Jim
If the first mortgagee forecloses, yes, it can serve to extinguish the second IF the second doesn't protect itself by bidding.
Will they? That's part of your due diligence you should do when you enter into a negotiation. Learn as much about your opponent as possible. Do they, in fact, bid to protect their junior interest?
In your Proposal to the second, did you project their costs?
Calculate the mechanics and costs of foreclosure, and see what their maximum recovery would be. Offer them that.
You could always do a loan discount on the note on the 2nd, bring the first current then foreclose then you dont have to worry about the 2nd bidding at auction, you could go ahead and continue making the payments on the first until you are ready to refi out of it
I know this sounds crazy but my goal is not to foreclose on either mortgage. Could I possibly purchase the 2nd note for less than $15K and then forgive the debt to the sellers. If I owned the note would I have the authority to forgive the debt? My ultimate goal is to reduce the debt of the 2nd even more than $15K payoff the 1st and sell the house.
I think we are getting somewhere--Jim
As the second mortgagee, you could choose to forgive the debt (be aware of possible tax consequences to the Seller).