No since all you will hold at that point is a second mortgage note for the $400k.
If the first mortgage holder files foreclosure on the day it hits court they will stand up and bid what ever the total is as of that day on their first mortgage. Then anyone else can stand up and bid higher then what the 1st mortgage company bid. You must check out the rules of the bidding before you go to the court house. Each area is diffrent on this some you must put down 10% right then and the balance within 24 hours , others it’s 100% to the court clerk before the close of cort for the day.
There are two types of investors that do these deals one’s with deep deep pockets that can write a huge check and one’s with lines of credit set up from their banks.
The only way to protect yourself in a deal like this is to have in your attorny write in your agreement wording that will give you the right to step in pre-foreclosure to take out the 1st mortgage holder to make yourself whole.
Any funds bid at the foreclosure sale over the 1st would go to you as the second note holder but that is a low amount since the buyers will be starting at only $1 over the first mortgage holder.
I’m from the savannah, ga area. I have been offered a 25% 2nd trust deed secured by a new medical office building that will be built on a 1.3 acre lot in a hot area. Total cost to purchase the land, do the improvements and build the medical office building is approx. $1.9 million. The developer is wating on the certified appraisal from a very reputable local company. The developer says that the appraisal will be in the $2.3 to $2.5 million area.
Is this a safe investment?? What else should I ask for? Any advice would be appreciated!! Would you invest in this with a portion of your personal or retirement funds?
Thanks
Lisa
P.S. Additional info - Loan amount $1.5 million - My investment 400K - developer $400k equity in land. The property has increased by 400k during the 9 month closing process.
I know this is a late post and you may have already made a decision.
If you’re still contemplating the investment my advice would be not to. A second lien on a development property is not the place for retirement funds, regardless of the developer’s claims of value.
It’s only a safe bet if your in a position to take out any 1st lender in case the deal goes south. If your not in a position to do that then your in position to loose your funds.
Don
Thanks for the advice. Can I use the 400k equity in the land to help with bailing out the project if it heads south? The developer is saying that the 400k equity in the land will prevent this project from having any problems. Correct?? I know that commercial property where this lot is located is appreciating about 50% per year. Will that help me to bail out the project if it goes south? Thanks to anyone who responds.
Lisa