Need Help! Bought 2nd mortage at Trustee Sale

[Alan Lee]

I am writing to seek some help with a recent property I just acquired (or so I thought). I have been attending trustee sales for a few months now, and finally pulled the trigger on a property this morning. However, after placing the winning bid, I realized that the deal was too good to be true. In reality, what I won was the note on the 2nd mortgage. I paid $75k for a $175k note. I did not realize until after the fact, that there is a senior loan on the property for $365k (not including any arrears). My question is this:

What should I do now? The owners just moved out yesterday, and the home is vacant. What rights do I have as the junior lienholder? Can I obtain possession and call a locksmith to open the home? The property is located in CA.

My plan is to buy this property outright and rent/re-sell it, and I am willing to pay $280k to the 1st lienholder. I'm not sure whether to speak to the owners directly regarding this matter, or having an experienced short-sale realtor contact them.

Any help is greatly appreciated. Thanks in advance!

[Vikram C.]

Here's what I would do if I were in your situation (which I would not be in, of course).

1. Contact the trustee asap and see if they can set aside the sale to you as an error. They are not legally obligated to do this but I have seen it happen once in a while. If you bought it through a bidding service, check your contract with the service to see if they guaranty lien position and ask them to solve the problem for you.

2. Recently there were a couple of dumb investors who did the exact same thing as you have done. Instead of accepting the cost of their stupidity, they contacted a local newspaper and managed to get it to publish a story about how banks and trustees are terrible people costing innocent people money. The bank did not want bad publicity and decided to cancel the foreclosure and return the money to the buyer. You can try that route. (It makes me very upset when people try to cancel deals but you asked for ideas and this is one possibility.)

3. Check the county recorder for notice of default and notice of trustee sale on the 1st mortgage. If the first mortgage has not yet been foreclosed on, you should immediately start negotiations with the lender to try to work out a short sale. (You have essentially bought a property subject to the first mortgage.)

4. Contact a lawyer to see if you can get out on some technicality. Banks have been flooded with foreclosures and I see a lot of foreclosures that have some minor error. You live in a liberal state so you have a shot at painting the bank as an evil organization and can probably get it to settle with you if there is even a minor error in the foreclosure paperwork or process.

I am sure there are some other angles that you can work as well. But the 4 things mentioned above are things that I have seen happen and you can give them a shot.