JUDGEMENTS IN SHORT SALE - HOW TO HANDLE? - Posted by jerry-IL

Real Estate Investing
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Posted by jerry-IL on December 21, 2002 at 02:53:10:

The supervising attorney at the law firm for the judgement lien-holders is the guy I spoke with. I told him the reason for my call and that the mortgage lender in first position was foreclosing and I wanted to pay his clients at a discounted rate. He said they’re hanging in there for ALL their money. I said they’ll get wiped out at auction and I’m willing to pay a reasonable percentage. He shut me off. I should mention that one of the lienholders is Conseco which just filed bankruptcy, but I’m almost sure that wasn’t an issue, because the other lienholder is NOT Conseco and the attorney had the same disposition.

I had a case in September where the first mortgage holder (who was foreclosing) refused to short-sell or deal with me at all until I got a release (or approval or buyout or whatever) from the second mortgage holder. The second would not budge a penny and the deal fell through. Was I missing something THERE as well? (Please don’t get sidetracked with this comment and forget to address the first question). What to do? Game plans?

Thanks to all,
Jerry-IL

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JUDGEMENTS IN SHORT SALE - HOW TO HANDLE? - Posted by jerry-IL

Posted by jerry-IL on December 20, 2002 at 15:13:35:

I was just ready to mail a voluminous package to a lender asking for a deeply discounted short sale. The townhouse may have structural damage by carpenter ants, bad water pipes and black mold. When I executed the contract with the seller for the ridiculously low amount to make it worthwhile, I knew about one judgement. Just today, I finally reached the attorney for the judgement holder and found that instead of $6k, it’s now $8k, plus there’s another judgement for $4k.

Are my only choices: 1. Eat the judgement amounts hoping my rehab will be merciful. 2. Go back to the seller to execute an even more ridiculously low contract that has no chance instead of a slim chance, or 3. Is there a way to execute the HUD-1 settlement sheet (that the lender requires with the package) showing the lender paying off the judgements? Is it customary for a lender to credit a buyer for expenses like judgements against the seller? 4. Can I show the price I pay on the HUD-1 the same as on the contract, but show credit to me for having paid the judgements?

Please help. I feel that I should not send in the package until I know how to proceed.

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Re: JUDGEMENTS IN SHORT SALE - HOW TO HANDLE? - Posted by Marc NJ

Posted by Marc NJ on December 20, 2002 at 19:58:23:

Jerry, I am going through the same thing, but my short sale has been accepted and it was my impression that the title was clean. the day before closing I was notified that there had been 2 judgements that have not been released yet. I cancelled the closing and contacted the lender, they also thought the title was clean due to a BK that was discharged back in 94’, but the liens are still aattatched to property. Me and the lender called the lien holders and they refuse to release or discount. All I can do now is get the lender to accept a lower payoff. I had spoke with them this morning and they are still triing to get the lien holders to release. Thats where my deal is right now.
I reccomend that you first get the lender to accept a short payoff before you go any further. Without the approved short sale, you can get the lien holder to discount ,but you still dont have a deal, unless the bank will accept a short sale. So work on the bank first, then try to discount the liens.
Good Luck.
Marc Friedman
Statewide Property Solutions
Manahawkin, NJ

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Re: JUDGEMENTS IN SHORT SALE - HOW TO HANDLE? - Posted by TKP, Houston

Posted by TKP, Houston on December 20, 2002 at 18:44:23:

Jerry, Try to buy the judgements at a deep discount.
If they are several years old you might be able to pick them up at 15-20 cents on the dollar of the principal amount, or even less. No compensation for interest.
Alternatively, you might buy the 1st lien at a discount and conduct the foreclosure which will clear the judgements from the property. The debtor still owes but the judgement holders have no colateral. Just telling the judgement holders that you intend to foreclose, or that the property might go into foreclosure should induce them to consider a low-ball offer. Good Luck! TKP, Houston

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Change your offer - Posted by Jim FL

Posted by Jim FL on December 20, 2002 at 16:09:18:

Jerry,
I’m assuming you are buying the property from the borrower, because the lender has not foreclosed yet, and they are accepting a short sale amount?

If this is the case, they are accepting that amount to release their lien.
The others would need to either be paid off at close or remain on the property if you buy this way, as I understand it.

Why not change your offer to one of two things:

  1. A lower amount, while showing the lender WHY your offer is low.
    Remind them of the liens and all the EXTENSIVE repairs, along with pictures of the worst kind, by submitting this with the short sale offer package
    Since the offer has not been sent in, you have time to prepare it. Just get it done ASAP anyway, and show a VERY SHORT close date. Lenders would love to clear the books by the years end, so your timing is good for you.

or

  1. Change the offer to the lender from a short sale offer for the house, to an offer for the note. (Again, offering to clear their books before the end of the year, get that “BAD DEBT” away from them.)

Buy their position, and then foreclose.
If the judgements are junior liens to the note you are buying, you can finish the foreclosure, or institute your own and wipe them out, I think. (Check local laws with foreclosure, it varies by state.)
You may also have the seller deed the property to an entity you create and foreclose against it?
I’m rambling here with some random thoughts, bear with me.

This is surely something to ask an attorney who practices foreclosure law about. What are your options here and what is the lest expensive and most secure way for you to make your profit.
Know your numbers SOLID going in, and have more than one exit strategy so you can get your money out when needed.
As they say, “make your money when you buy”, and don;t veer from that.

I don’t see you convincing the lender to pay off liens that are junior to them to sell you this house.

Remain in control, and releaze that you must by a deal, not a sellers or lenders problem and you are in this to make a profit.
The lender loses by you not purchasing, not you.

Just some things to think about,
Jim FL