Junior Lien Holder Disaster Turn In to Foreclosure Opportunity?
Everything started with me funding a fix and flip project in Washington state as a junior lien holder. The property was sold during pre-foreclosure undervalue. I agreed to remove the lien with the rest of the debt secured by another property that the borrower owes in Arizona state. Now, the borrower has defaulted on the payment to my note, and I am in the process of filing a trustee's sale. Below are the numbers I gathered.
The property in Arizona was sold at $313k with $22k down payment and the rest of $291k was seller financed with a monthly payment of $1,500. The property was then lease-to-own to the current tenant with $26k down payment, $1,650 monthly payment, and $325k sales price with balloon in 2027. Then my debt of $19k is secured by this property as well. The market value of this property is at $307k.
Based on the above scenario, after the foreclosure sale, I still would not be able to recoup my debt since the estimated market value of the property cannot cover the entirety of the senior loan and my loan. I am considering the possibility of taking over the senior loan along with the tenant on the same term, which will give me $150/mo cashflow for 4 years, which total to $7,200, then plus the balloon payment of $325k in 2027, which will be $34k+. Seems like a better deal than actually selling the property to a third party?
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#1 Foreclosures Contributor
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@Xiaoyu Liang That could be dicey with the rent to own contract in place, as well as the existing seller financed note…your foreclosure could trigger that mtg to be foreclosed on.
Definitely talk to a Local attorney who deals with foreclosures to learn your options and possible consequences. At the least, this would require some communication and agreement with the first mtg holder.
hi @Xiaoyu Liang - not 100% in understand your post here.
You mention a promissory note, but do you have a lien/deed of trust actually recorded on the property in AZ?
Does the person who owes you money "actually" own the property in AZ? you mention is was sold, then sold again or lease to own etc, "with seller financing" etc, so my question is Who is recorded on title as the owner of the property? is it the person who owes you money.?
Aside from the "seller financing" you mention "senior loan", is that the seller financing you are talking about or a different loan on the property?
Quote from @John Slater:Yes. I have a lien actually recorded on the property.
hi @Xiaoyu Liang - not 100% in understand your post here.
You mention a promissory note, but do you have a lien/deed of trust actually recorded on the property in AZ?
Does the person who owes you money "actually" own the property in AZ? you mention is was sold, then sold again or lease to own etc, "with seller financing" etc, so my question is Who is recorded on title as the owner of the property? is it the person who owes you money.?
Aside from the "seller financing" you mention "senior loan", is that the seller financing you are talking about or a different loan on the property?
The person who owes me money actually own the property. He lease-to-own to the current tenant with due date in 2027.
yes. Seller financing is the senior loan.
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Quote from @Xiaoyu Liang:I am confused, can you clarify:
Everything started with me funding a fix and flip project in Washington state as a junior lien holder. The property was sold during pre-foreclosure undervalue. I agreed to remove the lien with the rest of the debt secured by another property that the borrower owes in Arizona state. Now, the borrower has defaulted on the payment to my note, and I am in the process of filing a trustee's sale. Below are the numbers I gathered.
The property in Arizona was sold at $313k with $22k down payment and the rest of $291k was seller financed with a monthly payment of $1,500. The property was then lease-to-own to the current tenant with $26k down payment, $1,650 monthly payment, and $325k sales price with balloon in 2027. Then my debt of $19k is secured by this property as well. The market value of this property is at $307k.
Based on the above scenario, after the foreclosure sale, I still would not be able to recoup my debt since the estimated market value of the property cannot cover the entirety of the senior loan and my loan. I am considering the possibility of taking over the senior loan along with the tenant on the same term, which will give me $150/mo cashflow for 4 years, which total to $7,200, then plus the balloon payment of $325k in 2027, which will be $34k+. Seems like a better deal than actually selling the property to a third party?
For the property in Arizona, you said it was sold. Did your borrower sell the property or did your borrower buy the property?
If you secured your lien on the property in Arizona, and your borrower sold it, how did it sell without you getting paid off? You should be in first position??
If there is a new borrower on that property with a lease to own, just go foreclose on it as that borrower who did the lease to own IS NOT going to let it go to sale as he could lose it and his entire deposit, then turn around and sue your borrower.
Sorry something is not adding up, so can you put in fake names so we can follow the path.
The borrower bought the property with seller finance and then lease-to-own to the current tenant. The same borrower holds the title. The same borrower owes me money.
Quote from @Xiaoyu Liang:Got it. And loans/liens recorded on the property?
The borrower bought the property with seller finance and then lease-to-own to the current tenant. The same borrower holds the title. The same borrower owes me money.
is your 19k recorded as well?
Quote from @John Slater:Yes. Everything is recorded.
Quote from @Xiaoyu Liang:Got it. And loans/liens recorded on the property?
The borrower bought the property with seller finance and then lease-to-own to the current tenant. The same borrower holds the title. The same borrower owes me money.
is your 19k recorded as well?
Have you looked at purchasing the property tax lien on this? I checked and Arizona allows investors to buy property tax liens. This could give you the opportunity to eventually foreclose out the senior lien.
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- Virginia
@Xiaoyu Liang
Foreclose - this will create a $ht storm between the current lender and the lease to own option buyer
You will either end up with property and owe the first mortgage on it or get paid off.
The lease option person if smart would pay you off and reduce it from what he owes this person otherwise they lose everything