Bid On House Subject to 1st mortgage... Advice Needed (Ohio)
Member since 2023 · 7 posts · 1 vote
Bid On House Subject to 1st mortgage... Advice Needed (Ohio)
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
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25 Replies
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @John Perry:
I bid on what turned out to be a a 2nd mortgage in Ohio. The house is worth around $300k. I paid 258K at auction. Looking through the court records I can see that the 2nd mortgage was awarded ~100k. There are around ~145k in excess funds which I assume go to the owner not me or the existing debt. How bad is my damage. I don't have much cash left to pay the first mortgage, in fact I don't even know how much debt there is on the first..
IF anyone has any advice to minimize damage, or a contact to call please let me know. My primary concern is figuring out how much debt is left on the first.I don't quite understand your numbers. Let me reword them and tell me if I'm correct.
You bid on a property in OH that is worth $300K.
You won the bid & paid $258k on what turned to out be a 2nd mortgage.
The second was actually under $100k and was paid off with your winning bid amount. Which means the remaining $158K is unaccounted for.
The first mortgage still exists, as far as you know at this time.
The questions would be, what happened to the rest of your money.
Your question, Was it applied to the first, did it go to the second as "excess funds", or where did it disappear to.
And your other concern, how much is owing on the first and what happens now?
Foreclosures are state by state and it also depends n the type of loan.
So, since I don't know the specifics, or OH foreclosures we'll try to get someone like @Chris Seveney: @Jay Hinrichs: who can give an idea, because I'm curious too - Member since 2023 · 7 posts · 1 vote2y
Yes. that is correct Property value (300K)
My bid $258K. Won and paid. Money was applied to 2nd mortgage + a few more tax liens. Those are wiped now.
Now there is around ~$146K in excess "pending further order of the court".
My main question is. What will happen with this $146K in excess.
Will it be used to pay down the remaining debt for the 1st mortgage or will it be given the former owner/trust? The previous owner passed away
The plaintiff in the court case is the original mortgage (1st mortgage) bank. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@John Perry
It is not paid down on the first it will go to the property owner. This may end up being an extremely expensive lesson of why you need to pull title and understand what your doing on foreclosure sales
You now own the home but are responsible for the first mortgage balance. So let’s say the first has a $100k or $200k balance / you still owe that money to the first
Depending on its current status you may be able to continue making payments on it or the first may end up foreclosing.
7e investments53 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Chris Seveney
If you need an attorney I can get you in contact with one.
Also was the senior lien named in the case - as in some rare instances they will name the first so the bid does include the first and second, but that is where an attorney will come into plays the actual court filing on the county website would include that info
Out of curiosity what was the opening bid?
7e investments53 Reviews - Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes2y
How can a second position be paid off before a first position
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
7e investments53 Reviews - Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes2y
@John Perry Did you mis speak in your second post? There you said the 1st mtg holder was the plaintiff, not the second.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes2y
Quote from @Chris Seveney:
@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
Wow crazy. I’d pay a lawyer to write a letter to the judge asking the excess pending further order of the court go to the 1st position lien. Shot in the dark.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes2y
Here’s an Interesting article. It’s possible one of the legally required steps to complete the foreclosure wasn’t done and could render the entire foreclosure invalid.
Point is you need to consult a lawyer asap!
As mentioned above, typically when a junior lien forecloses, any surplus goes to any subsequent junior liens then to the owner. The first lien holder does not as title will be taken subject to that lien. However, Ohio is one of those peculiar states where it doesn't follow the traditional rule of lien priority with respect to the pecking order in getting paid in a foreclosure.
As Chris mentions it depends on whether the first lien holder was notified in the foreclosure suit or not. If they were not named, then automatically title to the property will be subject to the first. If named as a defendant, then they can agree to be paid out of the sale. You need to check the judgment or Order of sale to determine which. Here is a good article at bottom which explains it better.
If it is indeed subject to the 1st, have you paid the remainder of the funds or only the deposit? You can try and back out and just lose your deposit but be warned that the Sheriff could hold you in contempt and force you to pay the remainder.
We had the exact same scenario a few years ago where we held the 1st and the Condo association was foreclosing subject to our 1st. The unsuspecting buyer at the sale backed out not realizing it was a junior lien. The Sheriff let them off the hook and only lost his deposit.
https://frostbrowntodd.com/unique-concerns-when-foreclosing-...
- Investor · Germantown, TN · Member since 2016 · 14 posts · 8 votes2y
Solid advice as usual from Chris 7e.
Some self searches for loans you could look up I believe they hold Fannie and Freddie loans for not in their database at
Title search from the Note space at: https://protitleusa.com/
I met many of these folks in the Note space in Las Vegas at The Paper Source Note Symposium in 2018.
~ changes my life and outlook on investing in Notes and Real Estate - Member since 2023 · 7 posts · 1 vote2y
Quote from @Wayne Brooks:
@John Perry Did you mis speak in your second post? There you said the 1st mtg holder was the plaintiff, not the second.
That is correct. The first mortgage is as I'm reading it XXXBANKXXX TRUST COMPANY listed as plaintiff. The defendant is XXPOSSIBLE HEIRS, XXXX DEPARTMENT OF TAXATION, XXXX COUNTY TREASURER, and 2nd Mortgage.
- Member since 2023 · 7 posts · 1 vote2y
Quote from @Chris Seveney:
@Chris Seveney
If you need an attorney I can get you in contact with one.
Also was the senior lien named in the case - as in some rare instances they will name the first so the bid does include the first and second, but that is where an attorney will come into plays the actual court filing on the county website would include that info
Out of curiosity what was the opening bid?
80k
- 2yJonathan SmallPro MemberInvestor · Suwanee, GA · Member since 2020 · 182 posts · 151 votes
@John Perry If you are investing 258k of your own cash, I highly recommend contacting a real estate attorney. It will cost you 2k at the most but will help you save your investment. It will also help you develop a relationship to buy foreclosures the right way. I would give advice, but it would not be as solid as a local reo attorney in your area. Send me a DM if you need to talk. Best wishes.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Jonathan Small:
@John Perry If you are investing 258k of your own cash, I highly recommend contacting a real estate attorney. It will cost you 2k at the most but will help you save your investment. It will also help you develop a relationship to buy foreclosures the right way. I would give advice, but it would not be as solid as a local reo attorney in your area. Send me a DM if you need to talk. Best wishes.
I agree. Hopefully this turns out correctly but it BLOWS MY MIND that someone would bid $250k at an auction and not know what they bid on or as mentioned spend $500 for a title report and attorney to review this.
7e investments53 Reviews - This fact pattern just went sideways.
Quote from @John Perry:
Quote from @Wayne Brooks:
@John Perry Did you mis speak in your second post? There you said the 1st mtg holder was the plaintiff, not the second.
That is correct. The first mortgage is as I'm reading it XXXBANKXXX TRUST COMPANY listed as plaintiff. The defendant is XXPOSSIBLE HEIRS, XXXX DEPARTMENT OF TAXATION, XXXX COUNTY TREASURER, and 2nd Mortgage.
Nobody can help without pulling the docket and reviewing all of the pleadings.
Gimer Law516 Reviews - Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2yThere are people who teach how to do this, the right way (said in a nice voice.)
Quote from @John Perry:
I bid on what turned out to be a a 2nd mortgage in Ohio. The house is worth around $300k. I paid 258K at auction. Looking through the court records I can see that the 2nd mortgage was awarded ~100k. There are around ~145k in excess funds which I assume go to the owner not me or the existing debt. How bad is my damage. I don't have much cash left to pay the first mortgage, in fact I don't even know how much debt there is on the first..
IF anyone has any advice to minimize damage, or a contact to call please let me know. My primary concern is figuring out how much debt is left on the first. Quote from @Account Closed:
Quote from @Chris Seveney:
@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
Wow crazy. I’d pay a lawyer to write a letter to the judge asking the excess pending further order of the court go to the 1st position lien. Shot in the dark.
That's a great waste of money.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes2y
Quote from @Ron S.:
Quote from @Account Closed:
Quote from @Chris Seveney:
@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
Wow crazy. I’d pay a lawyer to write a letter to the judge asking the excess pending further order of the court go to the 1st position lien. Shot in the dark.
That's a great waste of money.
why
Quote from @Account Closed:
Quote from @Ron S.:
Quote from @Account Closed:
Quote from @Chris Seveney:
@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
Wow crazy. I’d pay a lawyer to write a letter to the judge asking the excess pending further order of the court go to the 1st position lien. Shot in the dark.
That's a great waste of money.
why
A judge isn't going to disrupt state law to protect an uneducated bidder from himself. A judge may be entertained by your letter and an attorney might benefit from the money you paid but i think it would stop there.- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes2y
Quote from @Ron S.:
Quote from @Account Closed:
Quote from @Ron S.:
Quote from @Account Closed:
Quote from @Chris Seveney:
@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
Wow crazy. I’d pay a lawyer to write a letter to the judge asking the excess pending further order of the court go to the 1st position lien. Shot in the dark.
That's a great waste of money.
why
A judge isn't going to disrupt state law to protect an uneducated bidder from himself. A judge may be entertained by your letter and an attorney might benefit from the money you paid but i think it would stop there.Under state law first position isn't entitled to proceeds from a foreclosure? Just trying to learn. Sounds strange to me.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2yYou stated the operative word when you stated under "state" law since these matters are handled at the state level and the stated comment of the state law deciding, is stated correctly. It's state by state. ;-) There is no "one correct answer" when it's "state by state". And it's "case by case" and a case can run between $25,000 to $100,000 and take a year to a year and a half to litigate.
Quote from @Account Closed:
Quote from @Ron S.:
Quote from @Account Closed:
Quote from @Ron S.:
Quote from @Account Closed:
Quote from @Chris Seveney:
@Michael P. Happens all the time.
We invest in notes and it is not uncommon for a distressed borrower to pay their first mortgage and not their second
In those instances the second position lien holder will foreclose. The first is not paid off in this instance (typically but depends on state).
So let’s say they owe $500k on the first and $100k on the second
The second will foreclose and bid $100k, whoever wins still owes $500k on the house
To the first lender
This is what may have happened in this case and they thought the first was foreclosing so it got bid up.
Wow crazy. I’d pay a lawyer to write a letter to the judge asking the excess pending further order of the court go to the 1st position lien. Shot in the dark.
That's a great waste of money.
why
A judge isn't going to disrupt state law to protect an uneducated bidder from himself. A judge may be entertained by your letter and an attorney might benefit from the money you paid but i think it would stop there.Under state law first position isn't entitled to proceeds from a foreclosure? Just trying to learn. Sounds strange to me.
But the previous point is correct, a letter will be thrown into the waste basket, it would have to be a filed lawsuit. Under state law first position isn't entitled to proceeds from a foreclosure? Just trying to learn. Sounds strange to me.
if the first position is the foreclosing entity, then all proceeds go to them, up to total debt. If some other position/entity forecloses, the first position is unaffected and preserved and they get to foreclose so, they get nothing in the junior lien foreclosure.
There are some weird quirky calculations and bids based on a percentage of appraised value against the remaining unpaid balances of all claims but that assumes everyone did their jobs, they noticed properly, they have standing, they have cause, the junior did its math, etc.. In otherwards, I don't see the junior going to sale unless they had the math to do it and did their foreclosure properly. The senior consenting to the sale could change that outcome but they would be a fool to consent considering not consenting, preserves their claims against the property. Regardless, they aren't giving the surplus to the senior.I'm not giving legal and am providing an opinion and, I'm basing my opinion on assumptions and statements made by the OP.
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