What Happens If I Own A Second And ...
Imagine that I hold a second and the trustor stops paying on the first. So I step in and bring the first current. At this point can I foreclose on the second without requiring that I payoff of the first? How does this work? Do I negotiate with the holder of the first to let me assume? Or do I somehow have a right to assume? All under the assumption that the first has a Due on Sale clause.
Yes, you can bring the first current. This is called, advancing the fees. You have this right under the principle of "endangered collateral". Which just means that you have the right to protect your security interests. You then foreclose.
The problem is that the amount delinquent on the first can sometimes be substantial and you have to keep the first current during your foreclosure or risk being foreclosed upon by the first.
I have witnessed on a number of occasions, borrowers who have defaulted on their first, but kept their second mtg current. When the second mtg holder is finally put on notice of the default they just don't have the resources to cure the default or they realize that it would not be cost effective.
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Dear Sam,
Is it at that specific juncture that you step in and buy the second at about 10 cents on the Dollar?
Do you use it as protection as you bid up the sale on the foreclosure of the lst? Or do you bring your first current and then start your foreclosure from the second?
Now that's clever. A plus for that one.
Respectfully Lucius
Lufos
The answer is yes to both questions.
I'd buy the second at 8 cents on the dollar (I'm such a pussy cat). Then see if I could get a discount on the first. Ah, the best of both worlds.
Or, I may bid at the foreclosure with a bid credit of the second mortgage at face. I'd go up to a point which I could reasonably expect the pirates to go and just take my profit via the overbid.
The least attractive is the foreclose of the 2nd because of the time and costs