Posted by B.L.Renfrow on February 19, 2004 at 14:37:14:
Has the first begun foreclosure? If not, the second may not be as motivated to discount as they would if foreclosure was imminent. If the first is only behind one month, it’s not likely they’re close to foreclosing. However, given the payment history with the second, the lender may be motivated to cut their losses. Or, they may not.
Buying the note and paying it off at a discount are not the same thing, although for an investor’s purpose, it may not matter greatly which way you go.
If you buy the note, you are simply stepping into the lender’s shoes. The mortgagor remains responsible for the debt. Then, you can either foreclose yourself, bring the first current and continue making payments to protect your position as a junior lienholder, cancel the debt, restructure it or any of a number of other things.
If the lender accepts a discounted payoff, the loan, obviously, is paid off.
My feeling is that buying the note is usually preferable, simply because it gives you more options. A lot depends on the lender. As a matter of policy, some will sell their notes, some will accept only a payoff, some will do both and some neither.
Is your offer too high to start with? Probably. I’d start by offering 8-10 cents on the dollar. You can always go up if it makes sense to do so. But if the first forecloses, the second usually stands to be wiped out, so starting low makes sense.
Brian (NY)