Posted by M. Jamal Green on April 10, 2001 at 01:59:37:
Michael,
thank you very very much for your advice… I just found out about Wrap mortgages and PACtrusts so I have new topics to study… Thank you!
M. Jamal Green
Foreclosing when payors default on notes - Posted by M. Jamal Green
Posted by M. Jamal Green on April 08, 2001 at 13:39:59:
Hi everyone,
When you have a note on a property and the person paying the note defaults on it, can you foreclose even when they have a mortgage from an institutional lender?
Say I purchase a 15K 9.0% 20 year note with a balloon due in 5…
Now the payor has a mortgage to Chase Manhattan Bank and a note to me. If they default on my note, but not on the mortgage do I have the right to foreclose?
M. Jamal Green
Re: Foreclosing when payors default on notes - Posted by Michael Morrongiello
Posted by Michael Morrongiello on April 08, 2001 at 16:44:16:
Jamal:
I assume that you are stating whether of not you can foreclose on a private seller held 2nd lien that is in default even though the payors are current on the underlying lien to the bank type lender?
Naturally you can elect to call your loan due or in default if you are a secured creditor and have the property default, and acceleration clauses in your mortgage instrument. You should seek legal advice from a COMPETENT Real Estate attorney who has done foreclosures before in your county venue.
To your success,
Michael Morrongiello
Re: Foreclosing when payors default on notes - Posted by M. Jamal Green
Posted by M. Jamal Green on April 09, 2001 at 02:56:07:
Michael,
Thanks for answering! I think I was trying to clarify what kind of power a note has over a property if the note is a 2nd lien.
I think the scenerio I’m trying to address is something like this (I don’t know if this is a proper way to structure a note, but this is for educational purposes): Say I sold my house to someone for 82K (the FMV of the house is really 87K. I have a 72K mortgage on it from bank A, the title being in escrow, which I’ve paid down to about 66K. Buyer B comes along and I’m willing to do owner financing and ask him/her for 4K down, and 70K, and I’ll create a 12K note for the rest. The terms of the note is something like 12k for 30 years at 10% interest with a balloon payment due in 5 years.
Buyer B goes to Bank B and gets a mortgage loan for 70K and all is cool (right?)
NOW, say after 1 year, Buyer B stops paying my note, but Buyer B is still dutifully paying Bank B on the mortgage…
What kind of rights to I have? Is my note in first position or an equal position to Bank B’s mortgage? Also if Buyor B doesn’t pay me for an extended period of time, can I start to forclose?
I’m just trying to understand the power and nature of paper 
M. Jamal Green
Tenuous at best… - Posted by Michael Morrongiello
Posted by Michael Morrongiello on April 09, 2001 at 17:53:25:
Jamal:
2nd liens are very risky especially if you have to foreclose.
While your paying your attorney his legal fees, and the court costs, and filing fees to bring a foreclosure action against the defaulted borrower, you are also faced with the prospect of having to now make the monthly installments on the underlying lien as well.
As time goes by, much of the equity that might exist in a property can get eaten up very quickly (been there, done that…)
In your scenario, wouldn’t it make more sense to simply sell to your buyer and then “wrap” the underlying loan with either a “wrap around mortgage” or some type of “wrap” instrument like a contract for deed, agreement for deed, etc. ?
This way the debtor will pay YOU, and then you will deduct what is owed to the underlying lienholder and continue to make the payments to them. Going this route allows for far more control and immediate notice if a default occurs.
The only downside to this method may be in dealing with the dreaded and infamous (DOS) due on sale clause and having a disechanted lender choose to call their loan due…
To your success,
Michael Morrongiello