Question about foreclosing on a purchased mortgage

11 Replies

An older gentleman I know owns a mortgage and wants to sell it. The occupant has become a problem and is way behind on payments. If he sells the mortgage will the buyer be able to foreclose immediately? The gentleman does not want to foreclose himself for various reasons. The house is in Alabama.

Thx, Kent

You will have to follow the stips in the mortgage. First step would be to demand payment. Borrower would have the right to cure. If they fail, then you can proceed on the foreclosure process.

Hi @Kent Johnson ,

Time to search the forums for non-performing notes. It's not my area of expertise, but that's the magic search keyword: "non performing notes."

Don't assume that foreclosing is how you will make the most money off of this. 

As @John Thedford properly outlined you will have to follow the guidance in the loan documents in tandem to state and local custom. Generally, the Mortgagee will have to make demand and give time to cure. If the current Mortgagee has not so then this will fall onto the new Mortgagee. In general, that will probably mean the earliest you could move forward is going to be 60 days if the loan is 120 days past due, the minimal requirement for primary or second home. The 60 days is an estimation of the time it takes to service transfer - 30 days and the general amount of time to give a borrower to cure the NOD - 30 days.

Just for the sake of clarity, the demand is made on the borrower whether or not the borrower is the occupant or not.  Service or process would include noticing all parties with an interest which would mean the borrower and any unknown occupants.  SP comes after NOD.  

Hey @Kent Johnson ,

This can be a great deal. Provided it is at the right price. Non performing loans are usually purchased at somewhere near 50% of the loan balance, sometimes less. It also depends on the person in the property. I like to talk with the owner and find out what they want to do and get a feel for whether they are going to leave peaceably or if there are going to be problems. I have done a couple where the people wanted to stay. Thats alright also. I told them that we were going to have to sit down and talk about them staying. We came up with a payment plan and made a modification to the loan. This way we upped the interest rate a few points, shortened the term of the loan, but I forgave some payments and late fees. Because of the modifications these notes have been returning about 15% even though the stated rate is about 7% to 9%. 

It is very important to find out the laws for your state in addition to seeing what the note says.

Definitely find out the laws of your state. You can get in big trouble talking to a borrower about a loan that you do not own. Debt collection is a very heavily regulated area now and if you don't know what you are doing you can quickly get in hot water. That is not to discourage you, just to urge you to hire people who know what they are doing and properly licensed.

Originally posted by @Rick Pozos :

Hey @Kent Johnson ,

This can be a great deal. Provided it is at the right price. Non performing loans are usually purchased at somewhere near 50% of the loan balance, sometimes less.

Not with the flood of note investors willing to pay up to and past 65% of UPB on 1st liens over $75k FMV with no equity, and we have seen several times 2nd liens with performing firsts & full equity up to and over 60% of UPB...

@Christopher Winkler it all depends on the relationship that you build with the note seller. I dont buy in portfolios or big groups. I buy from individual sellers. They usually have 1 note and are at their wits end (motivated seller). Thats ok if they want a bigger %. I just dont buy that note.

I let them know that they have remedies that they can undertake to alleviate their pain AND get the most from their note. They, like most Americans, want the easy way out. The easy way out costs them more.

Thanks all for the replies!  I should have been clearer that I'm actually not considering buying it but just helping the seller be familiar with his options.  If he sells the mortgage I'm almost certain that a buyer will want to foreclose due to a pattern of non-payment over a few years and I was curious as to how quickly they could foreclose.  I will search the laws in Alabama.

Thanks again! 

Every state is different and has their own nuances. I would definitely start with a letter stating that the owner of the property is behind and will be facing foreclosure if the payments are not caught up within 30 days. Homeowner has 30 days to pay the $XXXX.xx which is X months past due. There may be a certain way that you have to deliver to the homeowner also (certified mail, post on door, etc)

I am sure there is someone from Alabama who has done this once or twice who can speak up and enlighten us on Alabama foreclosure process.

In Alabama, the first question is whether you have a mortgage with a due on sale clause in the mortgage.  If not, then you need to proceed with a judicial foreclosure and you would have to file a lawsuit with the Circuit Court.  If you do, then the process is quite easy.  You need to send out your FDCPA demand letter and if it is not paid during the 30 day period, then you can proceed with the foreclosure.  In Alabama, you need to publish the foreclosure for 3 consecutive week and then cry the sale.  

I don't see anything indicating that a due on sale clause is relevant.  Maybe I'm wrong. Did the original note maker and property owner sell the property?  Or maybe Brian meant to say a power of sale clause, but auto correct changed it to due on sale.

Judicial foreclosures in Alabama are usually done only if the note/mortgage holder believes there will eventually be litigation. Such as, the borrower has threatened to sue, or maybe there is a question about priorities among competing mortgages. In that case, a mortgage holder will file a judicial foreclosure action in order to just get it all out in the open at once and let a judge rule.

Most foreclosures in Alabama are non-judicial. If the mortgage contains a power of sale, then you can do a non-judicial foreclosure.  I would recommend hiring someone in Sirote's foreclosure department to handle it for you. They are very efficient and knowledgeable.

Timing will depend on the note and the mortgage, which might include requirements regarding notice and opportunity to cure.

Once past those things and ready to foreclose, here are the two statutes relevant to timing.  Foreclosures are very technical in their requirements, and doing something wrong can have very expensive consequences for you.  Please hire a VERY experienced attorney to handle this. 

Section 35-10-13 Notice of sale; minimum standards.

Notice of said sale shall be given in the county where said land is located.

Notice of all sales under this article shall be given by publication once a week for three successive weeks in a newspaper published in the county or counties in which such land is located. If there is land under the mortgage in more than one county the publication is to be made in all counties where the land is located. The notice of sale must give the time, place and terms of said sale, together with a description of the property.

If no newspaper is published in the county where the lands are located, the notice shall be placed in a newspaper published in an adjoining county. The notice shall be published in said adjoining county for three successive weeks.

Section 6-8-62 Timing and duration of publication; Internet publication.

(a) When the notice is required to be given for a specified number of weeks, it must be given by consecutive weekly insertions for the number of weeks so specified. When the notice is of a proceeding to be had or of an act to be done on a specified day:

(1) If the publication is for one week, the insertion must be not less than six days before such day;

(2) If for two weeks, the first insertion must be at least 12 days before such day;

(3) If for three weeks, the first insertion must be at least 18 days before such day;

(4) If for four weeks, the first insertion must be at least 24 days before such day;

(5) If for five weeks, the first insertion must be at least 30 days before such day;

(6) If for six weeks, the first insertion must be at least 36 days before such day; and

(7) So on at the same rate of increase, the time to be computed as provided in Section 1-1-4.

(b) When the time is specified in days, two weeks' notice is equal to 15 days' notice; three weeks to 20 days; four weeks to 30 days; and six weeks to 40 days.

(c) A newspaper publishing a notice shall also place the notice on an Internet website operated by the newspaper, if the newspaper publishes a website, and on a statewide website established and maintained by an entity having the capacity and ability to receive and upload legal notices from the majority of newspapers in this state as a repository for the notices. Posting on the Internet shall begin on the first day of insertion and run continuously until the expiration of the specified time. All newspaper notices required pursuant to this section to be placed on the Internet shall remain valid for all purposes, and the legality of the newspaper publication shall not be affected by the failure of the newspaper for any reason to upload legal notice publications to a statewide website or to another Internet website or to accurately post the notice publication on any website.

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