Is sub 2 deal possible once auction is scheduled? - Posted by sbwells

import · April 12, 2004, 10:47pm

Posted by B.L.Renfrow on April 15, 2004 at 09:57:29:

As to the lender proposing a forebearance agreement or a “new note”, yes it happens all the time. It appears this lender really does not want to foreclose if there are other options, which is not unusual.

However, most of the time the borrower will eventually be unable to make the now-higher payments and will end up back in trouble again at some point. Not always, of course, but often.

I would agree that the owner’s motivation to sell probably just went out the window, but you never know. I would go ahead and meet with them Friday. If they still want out, but just didn’t want the foreclosure on their record, you might still have a deal by taking over the new note subject-to, especially if you can work something out with the second.

If I had the cash available, I would still offer to purchase the second for a discount. At this point, unless I had the deed, I obviously would not offer a discounted payoff, but purchasing the note would make sense if the holder would come down low enough.

If that doesn’t work, just give the owners your number and keep in touch now and then, because it’s a good bet they’ll be back in arrears down the line.

Regarding investor resources in your area, Barb Karnes and the LIREIA are tops. She knows her stuff and from what I understand, very helpful to fellow investors.

Of course, she would know far more about practices local to LI than I do, but that’s interesting about the deeds. The only place I’ve ever seen a bargain and sale deed used up here is with a corporate seller. For example, Proctor & Gamble used to buy their transferred employees’ homes in my town. They would only sell using a bargain and sale deed.

It’s little more than a glorified quit claim deed. A plain B&S deed simply implies the grantor owns what he’s selling, but doesn’t warranty anything. A bargain & sale deed with covenant against grantor’s acts adds the concept that the grantor didn’t do anything to screw up title while he owned the property. That’s equivalent to a special warranty deed.

Realistically, as long as someone is willing to write title insurance, it doesn’t really matter what kind of deed is used, but as a buyer (or a title insurer) one would see that a B&S deed is far inferior to a general warranty deed in terms of recourse against the seller for title defects.

Good luck with this, and if you haven’t already, be sure to check out the LIREIA and their website at www.lireia.com.

Brian (NY)

import · April 12, 2004, 10:47pm

Is sub 2 deal possible once auction is scheduled? - Posted by sbwells

Posted by sbwells on April 12, 2004 at 22:47:28:

I am a newbie investor in NY (judicial foreclosure state) reviewing this potential deal.

Here are the facts:
1st mortgage is foreclosing with auction scheduled in 10 days.
Appraisal: $225k
1st mortgage: $131K (including $15k of overdue payments +fees
2nd mortgage: $56k (including $6k of overdue payents)

Questions:

Is it possible to purchase this home from the homeowner at this late stage of the foreclosure process or is it necessary to deal thru the referee? Which type of deed would I get from the homeowner? Which type from the referree? Please remember property is located in NY.
Is a subject to deal still possible after the FINAL JUDGMENT on the 1st has been determined? Can I make up the back payments and bring the 1st current at this point? Or is it necessary to satisfy the 1st in full in order to stop the auction from happening?

3)In order to have this deal meet my profit objective I need to get the 2nd to discount the note. How do I investigate this possibility without commiting myself?
I want to make sure that I can get the deed as well and reap the equity created before purchasing the 2nd note position at a discount.

4)Can someone explain how the referree is compensated? Is it a percentage of the final bid? If so, what is the customary %? If not on a percentage of the sales value, what is a reasonable referree’s fee?

Thanks in advance for all insights shared!!! Any additional caveats in structuring the deal would be more than welcome!!

SBWells (NY)

import · April 13, 2004, 6:09am

Yes - Posted by B.L.Renfrow

Posted by B.L.Renfrow on April 13, 2004 at 06:09:19:

Yes, you can purchase right up until the day of the auction by bringing the foreclosing loan current or paying it off. You will have to submit certified funds to the lender, probably through the lender’s attorney at this late date.
No. Once it’s struck off at auction, that’s it. There’s no redemption period in NY.
Call them up, fax an authorization to release information from the borrower, and ask them if they would consider either selling their note or accepting a discounted payoff. Make sure they know the first is foreclosing and the sale is imminent. However, there’s a fair amount of equity here if your appraisal amount actually represents FMV, so they might decide to hold out, or even bid at auction themselves to protect their interest.
Not sure, but the referree’s fee is paid by the foreclosing lender, so from your perspective, it’s really a moot point.

Brian (NY)

import · April 13, 2004, 9:52am

Re: Yes - Posted by sbwells

Posted by sbwells on April 13, 2004 at 09:52:23:

Brian,
Thanks for your quick response.

However, I believe I need to clarify my second question. Unfortuantely, I was not asking about a redemption period.

The foreclosure list that I receive includes 2 amounts:
a) the original mortgage amount and date (i.e. 03/01 121,000)
and
b)the FINAL JUDGMENT amount as of another date (i.e 12/15/03 - 136,225)

The “FINAL JUDGMENT” amount includes all of the overdue payments and other expenses (legal fees etc.) incurred as the foreclosure process moves along. It is not the “upset price” or the winning bid.

Now for the clarification required. According to an attorney that I spoke with, she stated that once this judgment has been entered that I wouldn’t be able to “bring the mortgage current” and consequently purchase the property subject to this note. Instead, she stated that the bank at this late stage would require payment in full. IS THE ATTORNEY COMPLETELY OFF BASE? Is a subject to deal still possible? Is a NEW lawyer necessary? (Please note that this lawyer stated that the referree is now in control of the sale of the property and that the homeowner couldn’t provide me a deed.)

In addition, could you explain which deed (bargain & sale, quitclaim etc) I should be using in this type of situation with a brief explanation of your choice.

Thanks again for your help. I’m meeting with the homeowner tomorrow so if you could provide as quick a reply as your 1st post it would be great!!

Regards,

sbwells (NY)

import · April 13, 2004, 5:00pm

A few more thoughts - Posted by B.L.Renfrow

Posted by B.L.Renfrow on April 13, 2004 at 17:00:01:

If you are able to strike a deal with the second, and you then approach the first’s FC attorney to reinstate and they decline, I’d go directly to the lender. Call up their loss mitigation or foreclosure department, be prepared to repeat the same thing many times, but be persistent until you get a decision-maker on the phone. Tell them (if correct) that you are prepared to immediately wire the funds to reinstate on behalf of the homeowner. They will probably want to shuffle you off to the attorney. Tell them the attorney is not available and you need to get it taken care of immediately. Be pleasant, but determined, and make it easy for them.

It’s possible they may have had enough of this loan, particularly if the borrower has multiple defaults or has lied to them. But in the absence of law requiring them to reinstate, try to convince them it’s in their best interests to do so.

Also, I’m a bit troubled by your reference to appraised value, but nothing about comps. The appraisal may or may not reflect actual market value; especially if it was done to obtain the second mortgage, it could well be in dreamland. If you haven’t already, you should immediately check sold comps to figure out the actual FMV.

Finally, assuming your appraised value of $225k is FMV, there’s plenty of room to use a hard money lender to pay off the first in full along with up to $15k to the second (assuming a 65% HML). If you end up unable to reinstate the first, it’s another avenue to consider.

Brian (NY)

import · April 13, 2004, 3:43pm

Re: Yes - Posted by B.L.Renfrow

Posted by B.L.Renfrow on April 13, 2004 at 15:43:38:

OK, I see now what you are asking. Unfortunately, I can’t give you a black and white answer. I believe the answer to the first question may depend on the lender. I’ve spent quite a few hours searching the state code, and I’ve never been able to find a specific reference regarding how close to the foreclosure auction the lender must permit reinstatement of the loan. I’ve also asked my attorney, and he didn’t know either…although I’m sure for enough money, he could have researched it further.

In the absence of a specific answer in the law, it would be up to the lender. I can only tell you that I have, in the past, reinstated loans up to a week or two prior to the auction without problems. Obviously, this is well after the final judgment of foreclosure has been entered, and required payment of the legal fees and lender’s fees in addition to the arrears (in one case I was able to negotiate with the foreclosing attorney to reduce his fee by half).

Where I do think your attorney may be wrong is the comment about the homeowner’s ability to provide a deed. It’s always been my understanding that up until the referee says “sold” at the auction, the owner certainly can provide a deed. If this is wrong, I’d love to see the reference. In fact, in the cases I mentioned above of mine, the deed was from the seller, not the referee. I think a referee’s deed is only used once the property has been sold at auction.

If I were getting the deed from the seller at this point, I’d want a general warranty deed, since that provides recourse against the seller in the event of title defects. Of course, if the seller is insolvent there likely wouldn’t be anything to collect in the event of a title problem anyway, but a warranty deed is still the best choice.

I don’t know where you’re located, but my problem with getting good legal advice is that I’m in a small town in a rural area. All the attorneys are generalists; there’s no such thing as a “real estate attorney” anywhere close to me. A few of the local attorneys are investors, but only of the buy and hold or buy low, sell high types, so they don’t really know anything more about the nuances of foreclosure and creative deals than I do.

The best source would probably be one of the “foreclosure mill” attorneys, of which there are plenty on Long Island and Buffalo, since that’s all they do. If you have spoken to the lender’s attorney in this case and are on good terms with him or her, I’d ask there.

Another resource would be an investor’s group, if there’s one in your area. Lawyers sometimes attend as members or guests, and if so, presumably would be a little more knowledgeable about the process than a general attorney.

If you’re meeting with the seller tomorrow, I’d go ahead and get a notarized general warranty deed from them. You can always tear it up if need be.

I would then go directly to the foreclosing attorney – not the referee – and tell them you are prepared to immediately submit certified funds to reinstate the loan (if in fact this is the case). If he says no, be persistent and ask for a reference to the law where it says you can’t do that.

Of course, you have the second to deal with as well. I don’t recall when you said the auction was scheduled, but I’d also be on the phone with them at the same time trying to work a discount of some sort.

As for the second, I would first offer to purchase their note (at a good discount, of course). That way, if you aren’t able to reinstate the first, you may well get something for the second, if investors bid at the auction, since there is plenty of equity over and above the first’s balance.

This ended up longer than I intended…hope it answers some of your questions, but I know it’s not terribly clear-cut. If you don’t mind, please post here the outcome of your negotiations and let us know what happens.

Brian (NY)

import · April 14, 2004, 10:16pm

Re: Yes - Posted by sb wells (NY)

Posted by sb wells (NY) on April 14, 2004 at 22:16:52:

Brian,

Once again thanks so much for the quick turn response. Your posts have been very helpful.

I wish that I had some positive news to report. However, just prior to our scheduled meeting today, the homeowner called and informed me that he received an updated payoff figure… the amount owed increased by $15k over what he had originally told me. Ok, not the best news but I knew that the homeowner was wrong with his original estimate (he had been quoting the final judgment of foreclosure amount). But the kick in the butt news is that the 1st is willing to “refinance” the money owed to them!!! So just a little bit more than a week before the auction and after the homeowner has been delinquent for almost 2 years, the bank is going to roll the arrears and expenses into a “new” note. Is this the equivalent of a forebearance agreement?!! Have you experienced this outcome yourself? Does this make sense to you!!!

Even with this turn of events, I scheduled another meeting with the homeowner for this Friday. The original deal may not be possible as some of the homeowner’s motivation to sell has dissipated. However, I still plan to get some info about the 2nd. I figure that if the 2nd is not aware of the “refinanced” 1st, that maybe I could still purchase the 2nd at a discount! What are your thoughts related to this? Am I working too hard to make something out of nothing?

In response to some of your questions, I am located on Long Island. Do you know any investors based here that are well versed in “local” practices downstate?
For instance, you state that you would want a general warranty deed from the seller. Up until a week ago, I would have expected just that. However, at the last local REIA meeting that I attended, an experienced investor informed me that around here a “Bargain & Sale” deed is used!! And in order to keep lawyer fees down to a manageable sum most people use the “standard” – the “Blumberg” form. Are you familiar with the differences between a General warranty deed and the Bargain & Sale deed? Most of the other investors and/or realtors that I’ve spoken with all have said the same thing and this is a bit scary…“Hmm, I never really focused on that, I just leave that (i.e the contract etc) up to the attorneys”!!! Unfortunately, the attorney I had planned to use has further confused me with some of her “insights”!! All I’m looking for is someone to corroborate the experienced investor!

Hope to hear from you soon and once again thanks for your help!!

Best Regards,

sbwells (NY)