Any advice on a discounted second mortgage?

2 Replies

Hello

I am currently negotiating a discounted payoff with a second mortgage. The balance is $25,000. I offered $5,000 and the bank came back at $16,000 and said that is “pushing it”

Could anyone provide any insight into negotiation with second mortgage lender?

The circumstance:

The owner is gone across country and hasn’t paid in over a year, they do not care about credit, repercussions or the home, owner has given me permission to speak with both banks. 1st mortgage is $118,000 , I found the vacant property driving for dollars and called the number listed on sign at house (it is not listed with agent). Number is to Ocwen, I have done some research and found they have some orders from various state’s banking divisions to cease any foreclosure activity.

I plan to pay the first mortgage off, but do not want to pay the full second mortgage balance as I can get into the property for around ($118,000-first -- $5,000-second) $123,000 rehab around $20,000 and sell for $160,000>. Additionally, if I understand correctly, should the property go into foreclosure, the second mortgage would only be paid if there are any funds left after 1st mortgage payoff and that’s if someone other than bank bids over the current balance of $118,000.

My thought: Present the comps, reference the fact that they are not getting paid when the property forecloses because the current fair market value is not enough to cover first and second mortgage.

You're assuming the 2nd wont' be sitting next to you bidding at foreclosure sale. I do it all the time as the 2nd lienholder. I go and bid on the senior lien, intentionally over total debt so that anything over total debt goes back to me, the bidding junior lienholder. I get to wipe out any investor in the process or at least make them bid up to get my my desired net gain. Best case it they pay me off in full. Worst case is i get the property and then resell it and don't believe for a second that banks don't do this.

I can tell you if your numbers are accurate, I would definitely be there to bid if i were the junior. Even if i discounted the fair market value for taxes and other holding costs, I would still come out whole for my bid plus a significant portion of my junior lien being paid off once i sold it.

My two cents is, if the deal still works at $16M, take it or at least, counter somewhere in between with your comps and other data. Unless Ocwen has a cease and desist in Iowa (Or wherever the property is) it would mean nothing in my opinion as the orders are for taking on new servicing or originating new loans and from what I read, Iowa does NOT have a C&D with Ocwen.

Property in is neighboring state (South Dakota)

Thank you for your input!

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