Mortgages & Creative Financing

Homeowner Bankruptcy: When Lenders Hope for it

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23 Articles Written
[tag]Bankruptcy[/tag], or the “B” word, is one of the few words that [tag]lenders[/tag] fear. It usually means that it will take several months before they will begin to see any money from a homeowner. When a [tag]homeowner[/tag] is in foreclosure and they file for Chapter 13 Bankruptcy, it effectively freezes the foreclosure and costs continue [...] View the full article: Homeowner Bankruptcy: When Lenders Hope for it on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

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    bdurfee
    Replied over 12 years ago
    Excellent advice on acquiring properties with second liens. I never dreamed that such a low dollar offer would be so successful … and it more than doubled your equity. Very smart.
    bdurfee
    Replied over 12 years ago
    Excellent advice on acquiring properties with second liens. I never dreamed that such a low dollar offer would be so successful … and it more than doubled your equity. Very smart. Reply Report comment
    Steven Boorstein
    Replied over 12 years ago
    Jim, Love your articles. Always a very eye-opening educatioal piece. A great example of how there is usually a solution to most every problem– and the power of negotiation. Steven Boorstein
    Steven Boorstein
    Replied over 12 years ago
    Jim, Love your articles. Always a very eye-opening educatioal piece. A great example of how there is usually a solution to most every problem– and the power of negotiation. Steven Boorstein
    Homeowners Insurance - HometownQuotes
    Replied over 12 years ago
    Now that turned out to be an excellent deal. I have read two blog posts now about short selling real estate. Are there any good books on this subject? I would love to read more about this opportunity, especially in today’s real estate market.
    Joel
    Replied over 10 years ago
    Now that is a very cool strategy – I would love to see more personal examples of different short sale tips that you have put into use.
    Joel
    Replied over 10 years ago
    Now that is a very cool strategy – I would love to see more personal examples of different short sale tips that you have put into use.
    Laurie Morgan
    Replied over 10 years ago
    I just stumbled upon this – hope you’re still reading your comments because I want to pass along my compliments. Really interesting post, and a smart solution! Also, one question: how did the second lien holder finally become convinced that a bankruptcy wasn’t going to happen? Also, once you removed the second lien, did that open the door for other offers on the property (with higher equity)?
    Laurie Morgan
    Replied over 10 years ago
    I just stumbled upon this – hope you’re still reading your comments because I want to pass along my compliments. Really interesting post, and a smart solution! Also, one question: how did the second lien holder finally become convinced that a bankruptcy wasn’t going to happen? Also, once you removed the second lien, did that open the door for other offers on the property (with higher equity)?
    Erik
    Replied about 10 years ago
    @Laurie_ I understood the original post to indicate that the second lien holder waited until the morning of the auction in hopes that the borrower would declare bankruptcy (avoiding foreclosure, allowing the second lien holder to possibly recover some money via Chapter 13). Since the borrower did not declare bankruptcy the foreclosure auction was going to proceed, and since the auction was for the 1st position loan the 2nd lien holder would get ZERO. So they called the investor and took $0.10/dollar instead of zero. At that point the 1st loan is still scheduled to proceed to foreclosure in an hour or so. Note the original poster said he had the title company all lined up to pay off the first loan. So basically the poster had a purchase agreement with the homeowner (who was going to lose via foreclosure anyway) and that loan closed/funded/paid-off the first lien before the foreclosure proceeding that same morning. The closing at the title company was on-hold and would never have proceeded unless the investor got his discount from the second position lender. The homeowner got the house sold before foreclosure, so though their credit report will show late payments, the loan was paid in full by the investor. The second lien holder got 10% instead of zero, and the investor got himself a home at 62.5% market value instead of 85% market value. So he got a 37.5% discount instead of only a 15% discount. If he’d gone to auction, he MIGHT have gotten in for just the amount of the first line, thus a 40% discount, but would have had to face any other bidders. At least that’s how I understood the original post.
    Erik
    Replied about 10 years ago
    @Laurie_ I understood the original post to indicate that the second lien holder waited until the morning of the auction in hopes that the borrower would declare bankruptcy (avoiding foreclosure, allowing the second lien holder to possibly recover some money via Chapter 13). Since the borrower did not declare bankruptcy the foreclosure auction was going to proceed, and since the auction was for the 1st position loan the 2nd lien holder would get ZERO. So they called the investor and took $0.10/dollar instead of zero. At that point the 1st loan is still scheduled to proceed to foreclosure in an hour or so. Note the original poster said he had the title company all lined up to pay off the first loan. So basically the poster had a purchase agreement with the homeowner (who was going to lose via foreclosure anyway) and that loan closed/funded/paid-off the first lien before the foreclosure proceeding that same morning. The closing at the title company was on-hold and would never have proceeded unless the investor got his discount from the second position lender. The homeowner got the house sold before foreclosure, so though their credit report will show late payments, the loan was paid in full by the investor. The second lien holder got 10% instead of zero, and the investor got himself a home at 62.5% market value instead of 85% market value. So he got a 37.5% discount instead of only a 15% discount. If he’d gone to auction, he MIGHT have gotten in for just the amount of the first line, thus a 40% discount, but would have had to face any other bidders. At least that’s how I understood the original post.
    Austin Bankruptcy Attorney
    Replied over 9 years ago
    Great story. As a bankruptcy attorney, I see this all the time. If you have equity in your home and face a foreclosure, some second lienholders will actually advise you to speak with a bankruptcy attorney. Of course, in this market homes are often underwater and second lienholders face the risk that their liens will be stripped from homes through a chapter 13 bankruptcy. In that case, they fight bankruptcy tooth and nail. This has not been as big of an issue in the State of Texas, but it sure has caused problems in states like Arizona and Florida.