HELP! Over-encumbered house ? any possible deal? - Posted by KatieFL

Posted by Dave on April 05, 2001 at 01:46:14:

I also have a situation like this on an overencumbered home, and thanks in advance for some feedback. (1) owner is willing to deed overthe home to me- how can I do this with a contingency to settle the 3 liens? (2) If home is put in a land trust, can the first lienholder who is currently foreclosing actually foreclose on the property and take ownership?

thanks again,

HELP! Over-encumbered house ? any possible deal? - Posted by KatieFL

Posted by KatieFL on April 02, 2001 at 21:44:50:

I need some help. I have a house that I listed as an agent, and it just went under contract. The owners borrowed 125% of the value and now they are saying that they cannot borrow the money to pay off the second mortgage when the house sells. Well, that means the contract is off. I was trying to figure out if there is any way that I could help them not go though foreclosure (as an investor or an agent). I don?t see that I could work this deal, but please double check me.

Here is the numbers:
FMV - $85,000
1st - $71,000 @ 11% with mo. Pmt $800 PI ONLY (Household Financial services)
2nd - $28,000 @ 15% with mo. Pmt $398 (Ocwen Federal Bank)

Sellers are 2 pmts behind on 1st and 2 on 2nd. They have absolutely no money. They also just moved out of state.

I considered getting the deed and getting the Ocwen to discount the second, which it being a bank, I don?t know how flexible they would be. But even then, with monthly payment on 1st with $800/mo PI only + about $100 taxes and ins. and market rent of about $800, I couldn?t lease optioned it out and sellers can?t pay additional monthly payment. They understand that they are going into foreclosure. They said that they want to call Ocwen and see if they write off the second, so I gave them couple pointers because I don?t see any way that I could help them.

I just want to make sure I haven?t missed anything. If there was a way I?d love to help them. Oh, and FYI, we are in a buyers market.

Any help is appreciated


Re: HELP! Over-encumbered house ? any deal? - Posted by Nate

Posted by Nate on April 03, 2001 at 23:20:53:

Give it a shot, but my guess is you are unlikely to succeed with Ocwen. My experience with them is that they are aggressive and are probably more than willing to take property back and re-sell it. Working out sub-performing and non-performing residential loans is one of their specialties. They will probably go the the foreclosure sale, outbid the first by $1, and then take the property and sell it for FMV.

Good luck,

Re: HELP! Over-encumbered house - Posted by Ben (FL)

Posted by Ben (FL) on April 03, 2001 at 15:34:07:

First, I enjoyed meeting you at the convetion and I’ll see you at the Golden Corral for the next investor’s club meeting.

Here’s what I would try. Go ahead and get the deed, but make the whole deal contingent on getting satidfactory settlements from both the first and second lienholders. Make an offer to the second to settle for no more than $4,000 (they know they will lose everything if foreclosure happens, so they should for it. They may say “That’s not even worth my time to do the paperwork,” you can say “well what is the least amount you would go for?”, and make a short sale offer to the first. To figure out the amount of the short sale offer, calculate how much the bank will lose on the loan if they foreclose then try to re-sell(lost payments and interest, fees, attorney’s fees, repair costs, 6 months holding costs, and realtor’s fee). Subtract that amount from the balance and make your offer somewhere near there. They will do the same calculation as they assess what they should do. Remember, banks hate to own real estate!

The bank will require financial statements from the people being foreclosed - last 2 tax returns, bank statements, pay stubs, and a hardship letter aout why they can’t pay. At each stage, never hang up the phone with a bank person without them telling you when the next step will be complete. Then, call them that day, “Just following up on my short sale offer.”

Time is not on your side. They will take you up to the last day. Have your purchase team (bank, title, etc.) ready and primed. Also, the instant anyone says they will accept your offer say “Will you fax me that in writing? My title agent will need it to complete the HUD,” so they can’t go back on it.

Good Luck
Ben (FL)

Re: HELP! Over-encumbered house - Posted by David

Posted by David on April 03, 2001 at 18:57:03:

I am also taking a swing at an upside down house. This home has a first with OCWEN as well. There is also a 2nd and 3rd. So far, only the second will talk. At this point, we are probably going to move forward with a short sale offer to the first. Only problem we have now is that I have no idea what I am doing… I need to be educated on short sales ASAP. What will happen to the 2nd and 3rd?

Re: - Posted by Ben (FL)

Posted by Ben (FL) on April 04, 2001 at 15:42:19:

If the foreclosure goes through, and no one bids on the house, the 1st lender takes the house. When they do that, with few exceptions (federal tax liens), all junior liens are extinguished. If there ar ebids on the house in excess of what the first is entitled to get, then whatever is left over goes to the second. For example: The 1st lender is entitled to $65,000, there’s a 2nd for $6,000, and a third for $15,000. The FMV of the house is $120,000. At the auction, if someone bids $69,000, then the first gets $65,000, the second gets $4,000, and the third gets nothing.

If the 1st lender accepts your short sale offer, you still have to get the 2nd and 3rd to release their liens. I had to spend 10 minutes, once, explaining to a branch manager of Citifinancial that if they didn’t settle with me, and no one paid more than the balance of the first at the auction, then they would get nothing. Hard to believe that she didn’t know how that worked, huh?

You have to remind them that they wil lget nothing if the foreclosure goes through. If there’s a ton of equity, then it may be in the best interests of the second or third lender to go ahead and buy the house at the auction. So you need to downplay the value of the house and the likliehood that anyone will buy it at the auction. They most likely will not send an appraiser out to the house.

You said no one at the third will talk to you. Either they do not know there’s a f-closure going on (with Citigroup buying everyone up, mergers cause plenty of confusion) and so feel no need to talk to you, or they are just slam busy. Get copies of the Lis Pendens from the courthouse and fax it to them to buttress you case.