CA Flip Foreclosing by 1st, we're 2nd. Pay 1st & still foreclose?
Would like some feedback from lenders for a tough situation here in California.
Background:
1) Flipper borrowed $ from HML (1st position)
2) We provided gap funding (2nd position), terms are to be paid upon sale
3) Flipper fell behind and put four (yes 4!) liens after us to finish project (one owner is deceased, which complicates things)
4) Flipper stopped paying HML, so HML initiated foreclosure
5) Auction date estimate ~early October. We are prepared and can fund to buy at foreclosure and then sell ourselves.
Goal:
Ideally - move junior liens over to Flipper's new projects, sell property to pay 1st & portion of our 2nd (we get paid delta from another property in escrow)
If unable to sell, go to foreclosure and buy at auction.
To have more control of the situation, I would LOVE to pay off the 1st and still continue the current foreclosure. This will ensure the other liens get wiped and we can immediately begin selling it ourselves. I spoke to the Trustee company handling the foreclosure and they stated once I pay off the first, we would have to file a foreclosure and the clock restarts.
What I would like to know: Is there a way to circumvent this, pay 1st and still foreclose with the same timeline?
Scenario in my mind:
1) Draft TBD agreement to pay 1st debt after auction if our mutually agreed upon reserve is not met.
2) If at auction, someone pays enough to pay us both, great! (unlikely)
3) If reserve not met, foreclose, then based on our TBD agreement, the 1st deeds property to us after payment of their balance. There is really not much of an incentive for 1st. More so a favor for us.
Let me know your thoughts.