sub2 & offer to 2nd mortgage for discount? - Posted by Mike (IN)

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)

sub2 & offer to 2nd mortgage for discount? - Posted by Mike (IN)

Posted by Mike (IN) on February 19, 2004 at 12:47:11:

When offering a 2nd mortgage company a discount, do you approach it to them as “buying the note” or paying off the note for a discount. Is it the same?

Here’s the deal;
Value of house $150k
1st mortgage; $98k
2nd mortgage; $34k

The payments on both mortgages have had several late payments. The 2nd mortgage has a history where in the past 12 months, the borrower has been 30+ days late 5 times. The first is behind 1 month & the second is behind 2 months. I am looking at taking the first sub2 and paying off the 2nd for a discount. I was thinking of an initial offer of $10k for the 2nd.

Do you think my offer is too high to start with?


Re: sub2 & offer to 2nd mortgage for discount? - Posted by Jman

Posted by Jman on February 20, 2004 at 11:35:54:

Hi Mike,
I’d be interested to hear how your negotiations work out. I just tried discounting a 2nd mortgage and buying it from a loan owned by American General Finance. The 1st position had already started to foreclose.
I immediately discovered its hard to find the right person to talk to. One person said, “we don’t sell our mortgages” while another more knowledgable person said “we do it all the time”. In my situation, the 2nd mortgage had not been paid off and it was written off and turned into a judgement. Apparently, they don’t sell their judgements so I lucked out. Let us know how it turns out. Good luck. Jman