Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
Are you sure about the Mtg.s and their balances? It would be highly unusual for a lender to make a 2nd mtg loan of that amount, with an existing 1st. Check the 2nd mtg doc.s, maybe there was a subordination of that 1 St in there, if not released. Also, odd that the $195k mtg would have only a $20k balance at 14 years, unless it was a 15 year mtg. If there is a first, you would be buying sub2, and will need to pay it off. If the balances are as you say, I'd expect the 3rd mtg to be bidding, up to enough to take them out anyway. Best bet if your numbers are accurate, make a deal and buy it prior to the auction.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
Are you sure about the Mtg.s and their balances? It would be highly unusual for a lender to make a 2nd mtg loan of that amount, with an existing 1st. Check the 2nd mtg doc.s, maybe there was a subordination of that 1 St in there, if not released. Also, odd that the $195k mtg would have only a $20k balance at 14 years, unless it was a 15 year mtg. If there is a first, you would be buying sub2, and will need to pay it off. If the balances are as you say, I'd expect the 3rd mtg to be bidding, up to enough to take them out anyway. Best bet if your numbers are accurate, make a deal and buy it prior to the auction.
Saint Paul, MN · Member since 2015 · 19 posts · 13 votes
9y
Hi Wayne - The numbers are correct per the title company Owner and Encumbrances Report. Not sure if the 1st mortgage was closed but not recorded, it was subordinated, or open with a balance.
Yes the situation is odd with the size of the second mortgage and the amount of the pay down.
I'm going to go to the auction this upcoming Monday. I have the capital but not sure if I want tie it up for up to 12 months or get caught in a quagmire.
Half of me just wants to pull the trigger as there is little risk and experience is the best teacher. I'm sure I would learn a lot during the process too. The other half just says to spend the time, money and energy on other RE deals.
The amount of equity in the house makes it a winning deal but not sure if it's more work than it's worth for a newer investor!?!!
This is where I need a seasoned mentor. I have a mentor but he only has a few deals under his belt and and no experience in Sheriff Sales or buying 2nd mortgages.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
@Martin Kruger Don't know why you'd be tied up for 12 months. If you buy it, and if there is a first, you just pay it off. You can read the 2nd mtg document, online or at the courthouse, and see if the subordination clause is in there. Oh yeh, the 12 month redemption.....yeh, I'd want a big discount, but then again, you could go buy the redemption rights from the owner....don't know if the junior would have redemption, if not paid off.
Thanks for the mention. We've sold plenty of notes at Sheriff Sales so here's my thoughts:
The third lien will be wiped out at foreclosure. The winning bidder will win the property subject to the 1st mortgage. This means you can sell the property and at closing the 1st mortgage will be paid in full and the investor gets the rest. Depending on the type of market, it would be very unusual this sells for anywhere close to $20k. Just keep in mind to factor in paying off the 1st mortgage.
I'd also say that you should be certain that the 1st mortgage is really only $37k.
Saint Paul, MN · Member since 2015 · 19 posts · 13 votes
9y
Thanks everyone.
I'm sure on the numbers per the owner & encumbrance report that I pulled.
In 2nd position how do I protect myself from the 1st mortgage from foreclosing and wiping me out in 2nd since there is a 12 month redemption period?
Has anyone been redeemed on after purchasing a foreclosure at sheriff sale? What is the rate of return?
I'm going to the auction/sheriff sale for sure. If not to bid just to watch, talk, learn, and network. I have a few more places I am interested in bidding in the coming weeks that are not as complicated as this one so it will be nice to be familiar with the process.
There just seems to be so much meat on this bone I wish I had the funds and wherewithal to confidently move on this deal....
To protect yourself, you can try to keep the 1st current or try to reinstate it but it might not be possible if they've already foreclosed. And if they have foreclosed, it could be a different ballgame regarding the redemption and reinstatement rights in your state. The redemption period may not apply to you as the new buyer but I would check with a Foreclosure attorney in the state the property is located in since redemption and reinstatement rights vary state-to-state.
And if you want to try to avoid a bidding war, you could also contact the law firm that represents the mortgage company/bank that's foreclosing - you may be able to buy the 2nd mortgage before it even goes to sale.
Also I would check with a private money lender on funding this deal since they could lend you the money to take out the first mortgage.
Saint Paul, MN · Member since 2015 · 19 posts · 13 votes
9y
Update. I went to the sale. There was one other investor there. The sheriff sale did not take place on the target property. So...not much to take away.
The one thing I did learn was regarding the sheriff sale is they post the notice at the property and she had no record of them posting the notice at the property I was interested in. Therefore when I drive a potential property to look to see if it is or was posted. If not the sale most likely is not gonna happen. Well at least I learned something.
The other investor was not much interested exchanging information for mentoring however we talked a little about his investing strategies. So I have some take aways from our discussion. He buys HUD properties for the most part then BRRRRs them and sells 3-5 yr later.
Well I have 2 more properties I am interested in purchasing at sheriff sale. Pretty sure the sale was posted on one and I'm gonna drive the other on now.
My postings no longer apply to the posting topic so I might start to blog or post about my experiences moving forward.
Not gonna give up. Not a favorable outcome, however I did learn a few things.
Thanks again Chris T. and Dave Van Horn for your time and contributions!
What we found from selling properties across the U.S. in Sheriff Sales is that every county has nuances on the sheriff sale process. So talking to people in your area who have bought and/or sold properties this way will definitely be a big help in the future.