70/30 purchase

[Kyle Richter]

I've been working to purchase a forclosure. I've had good sucess with the bank that owns the 30% loan...I can buy that loan for a good deal...If I do that...do I own anything? I haven't got the bank that owns the other 70% to play ball.

[Jon Holdman]

This varies state by state. I assume you mean you would buy the second (the 30%) loan for pennies on the dollar. If you do start getting payments, you can make a nice return on the note you've just bought. The note is all you own.

If you're not getting payments on the note, you still have a couple of ways to make money. One is to approach the owner (you're borrower) and offer to accept a deed in lieu rather than foreclose. That would give you owner ship of the house, subject to the first.

If there is a short sale in progress, then the negotiator will now have to deal with you. So, maybe you can settle your note for a higher price than you paid.

If the first does foreclose, you have a risk of losing what you paid. In some states, you're left out in the cold. Here in CO, you have redemption rights. After the property sells at the sheriff's auction, you have the right to pay off whoever won the auction and take possession of the house. Anyone junior to you has the same right, but you get to add on what you're owed, which should be a much larger amount than you paid. Under the right circumstances (house worth more than the first, but less than both loans, you have cash to redeem), that can be a way to acquire the property cheaply.