Due on sale in second lien foreclosure

13 Replies

Well, you may believe to be “current”, but it is very rare for a borrower to keep making first mtg payments when the second’s foreclosure is imminent.  As an outsider, you wouldn’t know the borrower was late on the first for 90-120 days.

Originally posted by @Matt Pfefferlen :

I meant I will pay the mortgage meself to keep it current 

 They would still accelerate the loan...especially if it went to sale. That's a win win for them...and unless you pay them off in full, your purchase gets wiped out. They will start their foreclosure (If they haven't already) and you'll be at another trustee sale shortly, watching your money go down the drain if you don't pay them off before their sale.

I'd be very careful about buying a subordinate position without understanding a reliable exit strategy, a true knowledge and understanding of the liens on the property, payoff amounts, potential title issues, value of property, etc. People often buy 2nd positions just to find the 1st mortgage foreclosing on them shortly after or stuck with a worthless property they can't figure out a workout option on.

You should assume you will need to pay off the first, including any back payments, late fees, and legal fees.  Be aware, too, that the first mortgage holder is unlikely to give you any information about the loan without an authorization form signed (and maybe notarized) by the borrower.

Originally posted by @Matt Pfefferlen :

I am looking to buy at trustee sale a foreclosure initiated by the second lien. What are the chances of the first asking for payment in full from the due on sale clause in the note?

The first thing I do when a subordinate lien forecloses subject to my first is sending a payoff demand letter.  The 2nd thing I do is commence foreclosure from the 1st, if it hasn't already been started.  

Just starting one on an HOA foreclosure as we speak as a matter of fact.

What if NOD goes out because first is behind on payments, as the deed holder can I then pay it to get current and cancel NOD and then they would have to do the 30 day due on sale payment letter and then start foreclosure process over again?

Depends on the lender.....that don't Have to accept your third party payments.....title has been "alienated" by the borrower, they can foreclose or accept your money, totally up to them.

@Matt Pfefferlen Before I was a note investor, I bought two properties at HOA lien foreclosures. Wells Fargo serviced both 1st position Deeds of Trust on both properties. The trustees allowed me to reinstate both loans, one of which had a foreclosure date 2 weeks after the HOA foreclosure. Looking back, I was lucky it all worked out.

Wells Fargo wouldn't give me any information about the loan over the phone. Luckily, I had loan numbers and was able to get the amount for the P&I payment from a cooperative banker at one of their branches. I started making the P&I payments and rented one property out and flipped the other. Because we had the last 4 of the borrowers SSN, we were able to get a payoff for the one we flipped.

We rented the other one out for a couple of years and couldn't get insurance on the property for ourselves. Wells Fargo got a forced place insurance on the property that would insure their interest. No insurance company I talked to would double insure the property. They wouldn't issue us a policy even though we were the owners of record because the property was already insured by the lender. So, if the house burned down, Wells would get their money but we wouldn't get squat.

I tried to get Wells Fargo to cancel their insurance policy but they responded by sending us an acceleration letter. They never followed through with any other action but I wasn't going to keep a property that I couldn't insure. We sold it and made a good profit.

Can you buy a 2nd and make payments on the 1st to prevent foreclosure? Yes, you can, but not in all cases and not without difficulty and the risk that you'll be foreclosed on. If you're dealing with a big bank, you have a better chance of being able to do this. As you've seen from some of the other posts, if a private note investor owns the note, be prepared to payoff the 1st. If you are not in a position to payoff the 1st if you have to, you're putting your 2nd lien investment at greater risk.

Andy- when you say you had the last 4 of social so you could get payoff amount; I assume you mean that made it easier?  The bank has to take a payoff from someone with an interest in the house, right ? 

Technically by federal law the lender has to give you a full pay off amount, as you are a successor in interest.  That doesn’t mean they always cooperate or do it in a timely fashion.