Property for sale with a second mortgage taken out

9 Replies

So I am a real estate investor just starting out. I have a potential property, the seller is motivated and verified there aren’t any back taxes, and the home is owned by him, no banks involved. But he lets me know there is a 2nd mortgage taken out on the home. My question is when I find the buyer to purchase am I asking for the sellers original asking price plus the 2nd mortgage or just one or the other?

@TamaraFaye Smith The purchase price and any existing mortgages are separate thing. To make it work out in the easiest , most conventional sense, though, the purchase price must exceed the payoffs of the existing liens (mortgages, taxes, municipal, etc). If the liens exceed the purchase price and a mortgage is involved, your hope is to do a shortsale.

If there are no other loans currently on a property, the old 2nd mortgage becomes the 1st mortgage.

When explaining this to the seller, agree on your purchase price and let him know that the mortgage being paid off will come out of his proceeds. The seller will receive the purchase price minus the payoff minus the sellers closing costs. Or you could do the math for him and tell him what he will net. Whatever gets the deal done!

@Andy Mirza okay thank you! I understand the two being separate now and the purchase price has to exceed anything owed. But what I’m still a little confused about is if the owner of the home has a second mortgage on it then doesn’t that mean he is paying a bank for his home? So a bank is involved? I’m asking because my preferred route was to go with no banks to eliminate time and more paper work. Also what is the difference between a 1st mortgage and a 2nd one? A second one is taken out after the first is paid off?

No.  If a person has a “second”mtg, that means they also have a “first” mtg....they have 2 mtg.s at the same time.  Both must be paid off when the house is sold.

Originally posted by @TamaraFaye Smith :
@Andy Mirza okay thank you! I understand the two being separate now and the purchase price has to exceed anything owed. But what I’m still a little confused about is if the owner of the home has a second mortgage on it then doesn’t that mean he is paying a bank for his home? So a bank is involved? I’m asking because my preferred route was to go with no banks to eliminate time and more paper work. Also what is the difference between a 1st mortgage and a 2nd one? A second one is taken out after the first is paid off?

 I made an assumption from your OP that the owner paid off the 1st mortgage since you said that no banks were involved. I further assumed that the 2nd you mentioned referred to another loan the owner took out. To clear things up, do you know exactly how many loans are on the property? If there is only one, then that’s the 1st. If you have two mortgages, the one that was recorded “first in time” is the 1st and the one recorded after that is the 2nd.

If the 2nd was taken out after the 1 st was paid off, then it would be a 1st and not a 2nd

@Andy Mirza right I expected there to be no loan because after I asked him was he the owner and were any banks involved he said no banks but he had taken a second mortgage. Which doesn’t quite add up. It is a FSBO so maybe he wants to sell to pay off 2nd mtg. As well. He is renting it out and said the reason for selling is tired of tenants. I’ll have to gather more info on the situation. But you did answer my original question. Thank you.