Private lender foreclosure timeline

32 Replies

Have been offered an off market deal through a private money lender. The lender has offered us a property that another rehabber has defaulted on. The owner of the property is in jail and the lender plans on assigning the propeety to us in order to complete the rehab. We’ve analyzed the numbers and its a great deal. The property is in great shape and it wont take much for us to finish it and flip it. My question is how long does the foreclosure process take when a private lender has the lien? I know a standard bank foreclosure process usually takes long. What risks or pitfalls should we be considering in this transaction? We plan to open escrow shortly and move forward on this deal. Thanks.

Not sure what you mean by “assign the property”.

Is the lender going to foreclose, presumably get it back (if someone else bids more than the lender is owed, they get the property) then sell to you OR is he assigning (selling) you the Loan, then You have to foreclose?  Be aware, if he sells you the loan you are only due the total amount of the loan at the foreclosure auction.....if you want the Property, you’d have to outbid anyone who bids above your loan amount.

There’s no guarantee the lender(whoever that is at the auction) gets the property back.

Hi Armando,

If the lender chooses to let you assume the note. He will stop the foreclose on the property. I would still talk to a lawyer, but it sounds like a win for you and the lender. You assume the loan and the lender doesn't have to foreclose. Obviously, you win because you get to flip the property. 

Best, 

Hi Armando,

One more thing. I believe the current borrower has to agree to let you assume the note. Again, I would consult with a real estate attorney. I would guess the borrower about to be foreclosed might agree to let you assume the note. But... If there's equity in the property. The borrower could let the lender foreclose hoping the property sells for more than the outstanding debt at auction. The borrower would be entitled to any funds over and above the debt owed to the lender. It's a tricky situation for sure.  

Best,

@Wayne Brooks thanks for the response. The property will be foreclosed on by the private lender. It won’t go to auction or the traditional REO process since this is a private transaction between two parties The private lender will take possession of the property via the lien. The lender has offered the property to us at the same price for which the note is outstanding. My question is how long would this foreclosure process take being that its a private transaction?
@Account Closed thanks for the response. Its definitely a good deal. The private lender has indicated they will foreclose on the property and then allow us to purchase the property at the same price which is owed on the note. They obviously dont want to deal with the hassle of finishing the rehab to sell it when they have a buyer. This wont go to auction since the lender is just taking posession of the property back through foreclosure. Wondering how long a private party foreclosure takes. Will def consult with a lawyer on this one.

Hi Armando,

The timeframe to foreclose will depend on the courts. The lender must have a law firm working the FC. The law firm or lender will have a better idea on the timeframe. There are states where the FC process is slow, but AZ is not one of those states. I think it's probably a matter of a few weeks, but again the lender can give you a ball park date.

Best,

@Jeff Wheatley Jeff not sure if that option will work as the current owner is in jail. LOL. Also, they probably wouldnt be willing to give us the same deal the lender is offering. The lender just wants to recover the amount owed to them by the owner. In essence they want to reassign to us to complete the project. The numbers are great with all fixed costs and rehab accounted for with the ARV at about ~70%.

@Armando DeGuzman You are under a misconception....the lender can’t just “take it back thru foreclosure”...the last step of Any foreclosure action is a public sale/auction.  It doesn’t matter if the lender is a small private guy or Wells Fargo, the process is the same. If it’s a great deal, some other flipper will buy it at the auction.

BYW, the borrower being in jail doesn’t stop you from buying it from him....his advantage would be the lender can’t come after him for any deficiency.

Originally posted by @Account Closed :

Hi Armando,

If the lender chooses to let you assume the note. He will stop the foreclose on the property. I would still talk to a lawyer, but it sounds like a win for you and the lender. You assume the loan and the lender doesn't have to foreclose. Obviously, you win because you get to flip the property. 

Best, 

That's just plain horrible and wrong advice. You don't assume a note. There is no such thing. 

The only way the lender can sell you a loan/home they don't own is through a deed in lieu of foreclosure, where the lender and the borrower agree to forego the foreclosure process and just hand over the proverbial pink slip, and both walk away. Borrower let's go of the property and the lender gets it back. Anything short of that requires a foreclosure sale on the courthouse steps (Or whatever methodology that local jurisdiction employs) in order for the lender to gain ownership. The only other way the lender gains ownership is to be the high bidder at sale.

All of that crap some other poster is spewing is just crap. No, there doesn't have to be a law firm and outside of a lawsuit, AZ is a non judicial foreclosure state meaning a trustee initiates the foreclosure, not a law firm. There may be a law firm doing the trustee work but again, outside of a judicial foreclosure (meaning a lawsuit) it's a trustee, not an attorney.

Finally, when you say "Assume", I'm guessing you mean the lender is gonna sell you the note, in which case, you didn't assume anything, you bought a note. If that's the case, and if you want the property, you have to finish the foreclosure OR, the borrower does a deed in lieu of foreclosure with YOU (Instead of the original lender). That's the only way you are getting the property without a public sale that I can see. I suppose you could just buy it from the borrower and he gets to pay the note off from the lender with the proceeds of the sale but that doesn't sound like what you are trying to do.

At the end of the day, there are a lot of missing pieces to your scenario and/or a lot of misuse of the terms used in this industry. The one good piece of advice you got is, call an attorney.

I would ask the lender for a copy of the agreement he made with the initial borrower. There may be a clause in their agreement that spells out the actions available to the lender in case the initial borrower fails to complete the project by a certain date. In any case you would do yourself well to consult with an attorney that will act in your favor and that you go into this deal with both eyes open.

Originally posted by @Account Closed :

 That scenario is between the borrower and a proposed buyer...not between a proposed buyer and the lender/servicer/note owner. The borrower owes on the note, does not OWN the note. The lender/servicer is the only one that owns the note and is the only one that can negotiate the note. The borrower can only negotiate the property. If the borrower negotiates the property to a buyer (as you call it, assumes), they do it contingent on the lender allowing it and not calling the note due (That the lender owns).

Assuming the lender allows someone to assume a note (That's a BIG assumption), all they own is the note. The property still belongs to the borrower.

Consult an attorney is the key advice. You don't know the entire story, but to insult someone for posting a comment shows your level of professionalism or lack thereof.

 

There are a lot of red flags here - not only from the original question, but from several of the subsequent comments.  

@Armando DeGuzman   I am in no way trying to be derogatory or rude, so please don't take this as such, but one of the many "#1 rules" in this business is "don't get involved in a deal that you do not fully understand".  It is clear that you don't understand your proposed deal, and it appears the lender does not understand their rights, capabilities, or restrictions when it comes to foreclosure.

I've seen lots of people lose a whole lot of money in this business by getting involved in deals that they didn't understand - both good and bad deals.  This business is risky enough when you know what you're doing, when you don't know what you're doing that risk is exponentially greater.  And when you are dealing with other people who also don't know what they're doing, a good deal can (and often times does) turn into a complete s**tshow

Originally posted by @Account Closed :

Consult an attorney is the key advice. You don't know the entire story, but to insult someone for posting a comment shows your level of professionalism or lack thereof.

Its only an insult if you take it that way. I wasn't concerned with how you took it to be honest, just concerned with pointing out that your advice was flawed, at best. I get that this is a forum of opinions but some errant opinions are more egregious than others. My reply was based on the story that was available. I get that yours was as well but, regardless of how much or little of the story is known, that was horrible advice. Some people will actually take action based on the advice given on this forum. In my opinion, had the OP taken action on your advice, they would have an expensive lesson to learn.

Personally I would talk with the lender about purchasing the note. I would try to get a 10% maybe a 20% discount off of the loan balance. At the same time, I would try to get a hold of the borrower and see if they would be willing to do a subject to. If you do get the note at a discount AND you got the deed to the property, you can do a release of lien on the property and you own it at a great price.

Lots of moving pieces, but it is done more often than you think. 

I have purchased a few properties like this, but I was buying the non-performing notes for about 40-50% of the face value. Then I would either sub to or give the owner of the property a little something even though they were about to lose the house. This was just to keep good faith and also they dont completely wreak the house on the way out.

Get creative!!

Updated over 2 years ago

wreck

Originally posted by @Rick Pozos :

Personally I would talk with the lender about purchasing the note. I would try to get a 10% maybe a 20% discount off of the loan balance. At the same time, I would try to get a hold of the borrower and see if they would be willing to do a subject to. If you do get the note at a discount AND you got the deed to the property, you can do a release of lien on the property and you own it at a great price.

Lots of moving pieces, but it is done more often than you think. 

I have purchased a few properties like this, but I was buying the non-performing notes for about 40-50% of the face value. Then I would either sub to or give the owner of the property a little something even though they were about to lose the house. This was just to keep good faith and also they dont completely wreak the house on the way out.

Get creative!!

 I'm curious, if you were successful in purchasing the note, why would you approach the borrower for a subject to instead of a straight deed in lieu? Wouldn't that eliminate a step?

@Ron S. Yes I have done this a few times and yes it would eliminate a step.

People know that they are in a bad spot and about to lose their home. Deed in lieu still makes the people feel like they lost the game. Buying the house from them, even though they dont get a whole bunch of money makes it a win for them. They feel better about themselves, they get a little cash in their pocket to move and I am a great guy for helping them with their situation. Again, they leave the house in relatively good shape because they are not angry at me.

@Rick Pozos do you have any resources you can point me to where I can get better educated on the strategy you mention? In this scenario the private money lender is quite seasoned and well thought of in the community. It looks like the plan for the lender is to execute the power of sale clause and proceed with a trustee sale where the property will be priced with all the late fees so the trustee passes on the property and the lender takes posession. They will in turn then sell the property to us.
@Blair Poelman No offense taken. I welcome the advice and feedback. Always open to learn from seasoned pros. i may have misstated the original post since I am a newbie. The plan as I understand it is for the lender is to execute the power of sale clause and proceed with a trustee sale where the property will be priced with all the late fees so the trustee passes on the property and the lender takes posession. They will in turn then sell the property to us. Im just wondering how long this process usually takes. The trustee sale is scheduled for 11/15. Appreciate the guidance. This thread has been enlightening and both entertaining.