What's the best approach? Foreclosure property - Posted by Rob

Real Estate Investing
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Posted by Tim (Atlanta) on August 30, 2001 at 12:14:27:

The lender in the second position can foreclose if the first is current. The holder of the 2nd usually would not foreclose, because it is likely that they would be wiped out totally. But in this case, the house is worth $240k, and the first is $130k, so there is a $90k difference. The house would not sell for $240k at foreclosure, but the second may just bid it up at the auction to cover themselves. If they get it at the auction, they will have to satisfy the first, then retail the property themselves.

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What’s the best approach? Foreclosure property - Posted by Rob

Posted by Rob on August 30, 2001 at 10:42:29:

Hi to all. Thanks for taking a moment to give me some advice.

Looking at a property that has been slated for foreclosure.
First mortgage 130k – one lender
2nd and 3rd mortgages 90k – different lender

Lender #2 (the 2nd and 3rd mtgs.) is foreclosing.

Owner would like to end up with with 10k walking-away money.

I could buy it for 230k obviously and get everybody happy, if I wanted to do that and thought it made sense.

Or (and here is the question) – what is the likelihood that
the bank would, at this point accept an offer to settle the 2nd and 3rd for a discount. For example, I (or the owner) offer them 60k on their 90k notes.

The house, as is, is probably worth 240k-250k. With some sweat on my part and the necessary cosmetics, etc. (about 40k) I can turn it into a 350k+ house. I am confident of that.

Would the bank be more likely to want to go through with the foreclosure, have 220k in it and then have to list it, wait for a sale, etc. and ultimately hope to get their money back, or would the bank in this type of case be open to the idea of taking a hit so as to just be done and not have the funds tied up, the expense of the foreclosure, the uncertainty of a sale, etc.?

As a side note, the owner, who is hacked off at the bank, says that if it’s foreclosed his lawyer says he can take everything that’s not attached and on top of that he’s going to trash the place to some extent. I know that’s dumb, because if he reduces the value too much he’s ultimately on the hook for the deficiency, but this might well be a “blood from a stone” situation where the bank is concerned. He’s in trouble. So anyway, if he does tear it up some, the bank is getting a less desirable property.

What suggestions/observations does anyone have?

Thanks
Rob

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Re: Foreclosure property Response - Posted by Ronald * Starr

Posted by Ronald * Starr on August 30, 2001 at 22:47:21:

Rob-----

The owner has no equity. We all know that the first 10% or so of value in a home is foam on the beer. The $10K is a dream. If you give him any cash, he should kiss you whereever on your anatomy you ask. I would suggest that you might give him about $2K or $K for the deed. Bring the loans current. Get the place cleaned up and sold.

It would be nice to try to get the 2nd/3rd holder to discount for all cash and out of the situation. It can’t hurt to ask. Any reduction you can get means more profit for you. Just don’t pay too much cash for the discount. If they won’t discount much, just bring them current and leave your cash at home.

I would not offer to leave the owner in after you get the deed. Give your cash to him when he is out.

Good InvestingRon Starr*********

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Re: What’s the best approach? - Posted by Nick

Posted by Nick on August 30, 2001 at 12:30:53:

If possible, speak with the owner and get him on your side to some extent by agreeing to allow him to remain in the property for a few months after you purchase it without or at a reduced rent, if he agrees not to trash the place.

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Re: What’s the best approach? Foreclosure - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on August 30, 2001 at 12:09:36:

The problem here (from your viewpoint) is that the first mortgage is very small compared to the value of the home. The first is $130k, the house is worth $240k, so the bank thinks that it has a pretty good chance of getting most if not all of that $90k note paid off. Of course, there is nothing wrong with talking to the lender to see if you could buy the 2nd and 3rd notes. Who knows, they may want to sell instead of going through the foreclosure. Call them and see if you can get in touch with their Loss Mitigation department. You will likely have to go through several people before you get to the right one. Most banks won’t deal with the owner at all about a short sale, so don’t even bother getting him to call. Just tell them you are interested in buying the notes.

I have been doing this very thing over the last couple of weeks on a distressed property. It was a high LTV 2nd on top of a high LTV first. The holder of the 2nd was very willing to sell it. You just have to be in the right situation.

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what about the 1st lender? - Posted by mrstl

Posted by mrstl on August 30, 2001 at 11:54:36:

How can a lender in the #2 spot foreclose on the loan. My understanding is that only the first lender can foreclose on the loan, unless #2 is buying out #1 and then foreclosing? Your best bet is to negotiate with lenders #2 and #3 because they will be totally wiped out if it is #1 who is actually foreclosing.How far behind is the guy,and can you make up the back payments? The first lender may let you make up the payments if you talk to them, and then you would have to negotiate with #'s 2 and 3.

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Re: what about the 1st lender? - Posted by Rob

Posted by Rob on August 30, 2001 at 14:52:01:

Any lenders in any positons can foreclosure if they are in danger (2, or 3, or whatever is not being satisfed). They have the right to protect themselves.

This is the law.