When the 2nd is Closing on the 1st??
TCI Gang...
I am working with a homeowner who is being foreclosed on by the 2nd (Balance is $37.8K to Bank One). He is 5 payments on the 2nd = $2,960. His 1st with BofA is $86,661 and he is current.
He has a letter from Bank One stating they will lower the payoff on the homeequity / 2nd to $25,335 if paid in full by 4/30. I pulled comps from FMLS to confirm the values of high $140's - low 150's.
The homeowner is currently asking for 10-15K out of the deal. The house is a "pretty house" with little cosmetic improvements needed......very little.
1) Although he has a written letter from the 2nd stating they would take 12K less than what is owed.....is there a possibility to negotiate a better deal?? If so, please provide some insight.
2) Will the 1st be willing to short? Should I paint a picture that he is going to file bankruptcy and that he will not be able to make payments.....although he is current?
3) Any additional suggestions, strategies, insight, etc. would be extremely helpful??
Thank you. 
Make that ......."When the 2nd is FORECLOSING on the 1st". It would help if I could spell!!
By my understanding of foreclosure law (limited knowledge) a 2nd mortgage cannot foreclose on a property without first paying off the first mortgage, thereby becoming the first, or senior, lienholder. So if the 2nd is actually foreclosuring then the 1st lienholder would have already been paid. There would still be 2 different loans, but Bank One (2nd) would now hold both liens. I don't do short sales, but from the numbers you provided and home describition, I'd doubt that the bank would short.
Roger
Tab,
When the 2nd forecloses, the 1st will probably call their note due (the infamous due-on-sale clause), but NOT ALWAYS. The 1st will typically be willing to work something out with you (formally take over the note, etc.)
A very successful and profitable strategy is to acquire the 2nd and bring the 1st current, if it isn't already. Then continue the foreclosure as the 2nd lienholder! Walla! You have now acquired a $150K house for $25K and change plus the balance of the 1st. Do your cosmetic repairs and sell it retail!
Of course, you could also buy out the owners equity, bring the 2nd current, and then fix and sell. Also, you might be able to convince the owner to take a Promissary Note for their equity (to be paid upon resale of the house). Then all you need is to bring the 2nd current, fix and then sell. You have several options. Hope this helps.
[addsig]
tab,
The 2nd can foreclose, but the 1st will get paid first at the sale (if it were to get that far). Kevin had a pretty good idea, which you can take to another level; you could partner the deal with the homeowner. I am not to saavy on how this works, but maybe someone out here can chime in.
You could place a 3rd lien on the property, fix the place up, discount the 2nd (if you have the $, you could offer to buy the 2nd at a discount), market the house retail and satisfy your lien at closing. Depending how much time you have with the 2nd, you can get them to short sale and pay them off at closing. If you think it could sell at 150, you might be able to buy it cash (hard money), paying off the 1st and discounting the 2nd below $10k. A quick close might entice the 2nd to discount.
Before you do anything I suggested do your Due Diligence FIRST.
Let us know how it goes,
Juan
KEA,
On your first strategy, you say "acquire" the second and continue the foreclosure.
1. I assume you mean buy out the 2nd's position (note) for a discount?
2. Why would you continue the foreclosure? I assume since you have a note with a face value of $37k and you bought it for $25k you are now in a position to make $12k since you are acting as the lender?
3. I like the partnering with the Owner scenario, especially when the Owner is somewhat savvy... you get $$ to help them out of their situation..
Stacey,
When you acquire the second (discounted or not), you STILL have the right to foreclose for non-payment, just as the bank did. You have essentially switched places with the bank. If you do foreclose as a 2nd, all you would need to do is work out a payment plan with the lienholder of the 1st. Often, if the note is performing, the 1st will just let you assume the note (for a fee, of course).
Juan mentioned partnering up with the homeowner. That is an outstanding idea, especially if the homeowner just wants out! I would recommend doing an equity split in return for bringing their 2nd current and getting the property ready for sale. All you would have to do in this case is pay the $2500 or so the owner is behind on the 2nd and maybe paint and re-carpet. You might be out $5-6K, but you stand to make $15K. Everybody wins in an equity split, more so when the homeowner stands to lose everything if someone doesn't step in and help them out.
Hope this helps.
[addsig]
I appreciate everyone's tremendous feedback. The various strategies and techniques to create a win-win scenario are invaluable. I look forward to hearing from a few others.....