Bidding on Second Mortgage at Auction in 2 days, big questions
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Real Estate Investor · Dunnellon, FL · Member since 2009 · 24 posts · 33 votes
14yHere is a scenario that fits. If you obtain the certificate of title derived from that interest of a second mortgage holder the first mortgage will be superior. Therefore, you will be responsible for payment. Though, if there is overage from the sale they can claim it if they are first in priority. So, you after obtaining the cert of title can indeed go and negotiate with the first mort holder for the release of that mortgage but do not expect a huge reduction. Also make a query of the county official records to find any additional liens which may be superior i.e. county, state,fed. These liens will have a higher priority than that of the mort holder though there had been challenges made recently as to the first in time/first in priority common law being in confliction with current USC code.
Anyways, in Florida here is a 10 day period of objection after the auction occurs, but it is a formality for the mortgage holder to object to the sale, mostly. I have not seen a cert of title overturned by the owner during that window but have seen a case where the attorney representing the lender failed to show up at the auction to set the openinng bid and the property went for peanuts. That one was over turned.
All rights of redemption end upon closing of that 10 day window in regards to the interest at stake.
As for your first mort holder. It is unlikely that the auction will move forward if you approach with the capacity to pay it off or to negotiate the satisfaction thereof. Once the 1st is removed, the house is yours by virtue of the interest you hold in the property. With the satisfaction of the first, the interest derived by virtue of the certificate of title gives you right to possess and clear title to the property--if there are no other encumbrance holders.
In my opinion, yes the owner can sweep in and pay off the first most-let him. The first is satisfied your interest is superior to his, take possession.
This is only my mere opinion and added 2 cents for the day, I know nothing as I am not an attorney.
You can read a great deal more about this on my site.
FYI-See Title 28 for info info on release of IRS liens on auction property.
Good Information Is Contagious, PASS IT ON!!
18 Replies
- 14yMark UpdegraffBusiness MemberReal Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 691 votes
I'm not an expert. But, I would say on #2 : if the owner pays off the first, you would now be in first position and have a claim on the property. If he does not pay you, then you could foreclose.
Why not just purchase the first position? That will wipe out the second and you will hold clear title. Don't forget IRS has superior lien no matter when filed in the chain.
Best luck, keep us Posted,
Mark
Updegraff Group Realty4.746 Reviews - 14yJose T.Miami, FL · Member since 2012 · 7 posts · 0 votesOP
There will most likely be a lot more bidders waiting for the first mortgage to go auction. I do not want to get into a bidding war for the house. I'd rather win the auction for the second mortgage and payoff the first for the judgment amount.
I just want to know if after the certificate of sale is issued to me i can simply payoff the first mortgage or if the original owner still has the right to pay it.
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes14y
This is dependent on FL law, which I do not know. If you bid on the second and win the auction, you own the house. The original owner no longer owns the house. Now, there may be a delay time, an upset bidding period, or redemption rights. Former owners used to have a 75 day (IIRC) redemption period here in CO where they could pay you off and take back the house. That was eliminated a few years ago. You need to find out exactly how this works in FL. If you're not sure, seek legal help.
You should do a title search so you know EXACTLY what's going on. A title company can do this, though you will have to find one that can do it quickly. Most can't, and without that title search you could up losing your money.
There's a possibility the sale could be postponed or withdrawn.
Yes, you will (should, I should say) have the ability to pay off the first and eliminate it. You would also have to pay off anything else senior to the lien you're buying. IRS, HOA, water, etc. That's why you need that title search to know what you're getting into.
- 14yJose T.Miami, FL · Member since 2012 · 7 posts · 0 votesOP
Jon,
Thank you for replying. I have read several of your post and value your information and opinion.
Here's the situation
I have in fact done a title search. They owner and his wife do owe the IRS money. I'm understand the that IRS can take the house from me within a certain period of time. I'm fine with that as long as they pay me the cost of paying the first and second mortgage. I know they do not reimburse for any improvements made to the home.
The redemption period in Florida is usually about 10 days. There is really no redemption period per say. It is from the time the winning bid is made till the certificate of sale is issued which in Florida is about ten days.
I wanted to ask you if the owner has to pay just the winning bid amount or the entire cost of the final judgment in order to get the house back from me?
Thanks again Jon
- Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes14y
Forget thinking like that. If everything else is ok just make sure the first stays current, If the lender has a performing loan they would be brain dead to act now on a due on sale clause, unless there is a ton of equity and why would they waste time with it, they have other things to take care of, and even if they were brain dead you could pay off that note during the foreclosure, but there is a 99% chance that this will just be taking the property sub 2.
Just do your due diligence on anything that may be senior, as for the IRS they haven't stepped into any of my deals since we had a real president, and even then they accepted a token amount to release the lien, and were very reasonable.
Warning, make sure it is a second, I once had a second that was really a 4th because of a subordination agreement, almost got nailed on that one, would have lost every dime I was going to pay.
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes14y
Again, you really, really must consult with a lawyer to be sure about exactly what might happen.
If you buy the second at auction and then pay off the first and then the IRS decides they want their money, I do not know if they will pay you for the first or not.
Here in CO it also takes about the same time to issue the certificate of purchase. However, that's not a redemption period at all. After the sale the former owner has no rights at all. Now, if FL, perhaps they do. That would be redemption. Here in CO, junior lien holders do have redemption rights. A junior lien holder could pay you the amount of your winning bid plus a tiny bit of interest and take possession of the property. They would have to given notice and make the payment to you very quickly (about a week) after the sale. If they do not, they're wiped out. But the owner does not have this ability.
Again, though, I do not know how FL law works. Their either is a redemption period or there is not. According to our FL foreclosure page:
I also found this:
45.0315?Right of redemption.—At any time before the later of the filing of a certificate of sale by the clerk of the court or the time specified in the judgment, order, or decree of foreclosure, the mortgagor or the holder of any subordinate interest may cure the mortgagor’s indebtedness and prevent a foreclosure sale by paying the amount of moneys specified in the judgment, order, or decree of foreclosure, or if no judgment, order, or decree of foreclosure has been rendered, by tendering the performance due under the security agreement, including any amounts due because of the exercise of a right to accelerate, plus the reasonable expenses of proceeding to foreclosure incurred to the time of tender, including reasonable attorney’s fees of the creditor. Otherwise, there is no right of redemption.
History.—s. 2, ch. 93-250.It would appear the "mortgagor or the holder of any subordinate interest may cure the mortgagor’s indebtedness and prevent a foreclosure sale by paying the amount of moneys specified in the judgment, order, or decree of foreclosure". That sounds to me like the former owner would have to pay the amount of the judgment. I think that would go to the foreclosing entity (mortgagee), not you. Your purchase would be voided. Again, though, not a lawyer and if you want a firm answer you MUST consult an attorney in your area.
Seems unlikely a borrower would let it go to this point, though, since they could almost certainly work something out with the lender prior to this point. The bigger risk may be that junior lienholder (or, an investor who's purchased the junior lienholder's interest) would redeem.
- 14yJose T.Miami, FL · Member since 2012 · 7 posts · 0 votesOP
"The bigger risk may be that junior lienholder (or, an investor who's purchased the junior lienholder's interest) would redeem"
Funny you say that. About a month ago the second mortgage filed for an assignment of judgement and handed things over to some other company which appears to be some sort of trust or investment company.
BTW the second mortgage had gone to auction 2 times before and both times the bidders walked away and lost deposits of about 12K. Someone must have warned them there was a primary mortgage on the house. I'm pretty sure it was the owner.
I'm definitely going to talk to a lawyer. Thanks Jon.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
Originally posted by Jose T.:
... About a month ago the second mortgage filed for an assignment of judgement and handed things over to some other company which appears to be some sort of trust or investment company.
...That is not unusual; the banks also use "asset protection" measures, one of which is to take title to real estate in the name of a holding company. In order to do that, they will typically assign the judgment to the holding company. Although this might possibly be some entity who bought the note from the bank, in order to profit in some way.
Brian P offered you a good idea above; buy the second at the foreclosure auction, and then keep the first in place as a form of "subject to". The challenge is to get the borrowers on the first to give you authorization to act on the first. And you'd have to come up with the money for re-instatement of that first, but that would certainly be less money than paying off the first in full as you originally proposed.
Some further reading is at this next link:
http://www.biggerpockets.com/forums/41/topics/68977-foreclosure-auction-sheriff-sale-and-trustee-sale-faq - Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
One thing I have to ask now: It seems you are willing to take on all of the judgments - so why not just buy it outright from the people who are the borrowers in default? I could see buying it by bidding on the first lien at the foreclosure auction, to avoid paying down the second and any other juniors ...
The IRS lien can be negotiated away from being a lien against the real estate and just a judgment against the people who owe the IRS (the foreclosure will end up doing that anyway, unless the IRS redeems and gets something from their sale to offset the lien amount).
- 14yJose T.Miami, FL · Member since 2012 · 7 posts · 0 votesOP
Wow some great advice and insight on here. Thank you all for replying.
Well the the second mortgage just went through and they keep the maximum bid at the judgment amount. It was way underwater which is why I couldn't just buyout the borrower. When I look at the winning bidder it's the plaintiff but it's not the the bank or the LLC in the assignment of judgment. It's a husband and wife! They will probably buyout the first or do a subject to before the first mortgage goes to auction.
Man I'm kind of frustrated that this can even happen. The couple must have made some arrangement with the second bank to buy the junior lien before the auction.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
Originally posted by Jose T.:
... It was way underwater which is why I couldn't just buyout the borrower. ...What other liens were there that made it so far underwater? You were willing to pay for the first and the second mortgages, and the IRS lien could be released from the property and remain with the debtors who owed the IRS in the first place. Real estate and school taxes become yours when you buy this way, so what else was there?
- 14yJose T.Miami, FL · Member since 2012 · 7 posts · 0 votesOP
Alright here's the whole story.
House value 400K
2000 Primary mortgage 200K
2006 Second mortgage 700kI started getting interested in auctions 8 months ago and noticed the house sold for a bid of 330K but the bidder walked. When I researched county records I spotted the primary loan. It was still going through the judicial process.
The second mortgage goes to auction again. This time someone bids 275K and again walks away. Two deposits of over 10K down the toilette bowl.
A month after this, the final judgment is finally handed down for the first mortgage.
And...
Here we are today with the auction of the second mortgage going for the third time. It appears this time the lien was sold before the auction to a couple in order for them to secure the right to title and take out the first mortgage.
How would you guys have handled this if you were really interested in the property? - Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
The quick answer is this would have been a good short sale candidate, because there was a huge second at risk of being wiped out in the foreclosure auction.
Now, the game isn't over yet - the "fat lady" hasn't yet sung! The judgment on the first is going to go to foreclosure you said, so until the purchasers of the second get that re-instated - it will still foreclose. There may be a play available to you there. The holders of the second would have to compete in the bidding on that first lien. And if the people who bought the second are like the others previously who did not realize it was second - and backed out - well, they might just back out too ...
- Member since 2009 · 155 posts · 41 votes14y
Most likely it was a pendente lite plaintiff substitution. Generally, courts are pretty liberal on allowing parties to be substituted in so long as there is no prejudice to any parties. The strange thing about it is that they chose to bring the action in their own name. That's a scary proposition to put yourself on the hook in your individual capacity. It may not have appeared on the docket yet which is why it still reflects the old plaintiff.
The strategy (subject to verification of more facts) was to buy the 2nd note and control the bidding at the auction. Based on your debt outstanding no one could afford to outbid you; however, your actual cost is only what you paid for it plus the payoff of the first mortgage.
The IRS lien is the typical red herring. If the IRS lien is subsequent in recording to the foreclosing second mortgage it will get wiped out just as any other creditor. The IRS is afford special redemption rights under the US Code. I believe it is 4-months and there is a process for them to disclaim if you can show there is no equity. Be careful on doing repairs during that period as I believe they will not reimburse you for those repairs.
- Specialist · O'Fallon, MO · Member since 2010 · 148 posts · 46 votes14y
Jose,
You've definitely gotten some good answers. I actually don't disagree with any of them. I'm shocked about it being done in someone's individual capacity as well. But if they bought out the second see if you can get the first to sell to you! Wouldn't that really put a twist in things? You being in 1st position would have to be paid the full amount, they being in second may have to take a hair cut depending on the irs taxes and the value of the home above and beyond what the first lien would be. Can't guarantee it but you never know if you don't try.
Regardless of what news article you read don't think they don't do short sales and note sales such as this. Regardless of what their legal contracts claim. Part of the problem with the whole mess of it all actually. But then again the 1st will probably go close to full price of the originated amount regardless and with $200k I know of a property you can put that amount down on and make a handsome profit on still monthly without all the headache!
Good Luck! - Real Estate Investor · Dunnellon, FL · Member since 2009 · 24 posts · 33 votes14y
Here is a scenario that fits. If you obtain the certificate of title derived from that interest of a second mortgage holder the first mortgage will be superior. Therefore, you will be responsible for payment. Though, if there is overage from the sale they can claim it if they are first in priority. So, you after obtaining the cert of title can indeed go and negotiate with the first mort holder for the release of that mortgage but do not expect a huge reduction. Also make a query of the county official records to find any additional liens which may be superior i.e. county, state,fed. These liens will have a higher priority than that of the mort holder though there had been challenges made recently as to the first in time/first in priority common law being in confliction with current USC code.
Anyways, in Florida here is a 10 day period of objection after the auction occurs, but it is a formality for the mortgage holder to object to the sale, mostly. I have not seen a cert of title overturned by the owner during that window but have seen a case where the attorney representing the lender failed to show up at the auction to set the openinng bid and the property went for peanuts. That one was over turned.
All rights of redemption end upon closing of that 10 day window in regards to the interest at stake.
As for your first mort holder. It is unlikely that the auction will move forward if you approach with the capacity to pay it off or to negotiate the satisfaction thereof. Once the 1st is removed, the house is yours by virtue of the interest you hold in the property. With the satisfaction of the first, the interest derived by virtue of the certificate of title gives you right to possess and clear title to the property--if there are no other encumbrance holders.
In my opinion, yes the owner can sweep in and pay off the first most-let him. The first is satisfied your interest is superior to his, take possession.
This is only my mere opinion and added 2 cents for the day, I know nothing as I am not an attorney.
You can read a great deal more about this on my site.
FYI-See Title 28 for info info on release of IRS liens on auction property.
Good Information Is Contagious, PASS IT ON!!
- Member since 2023 · 1 post · 0 votes3y
Hi, I am new here and have a quick question. I found an interesting house on the sheriff's foreclosure list. I believe it has 2 mortgages: one in 2018 and one in 2021. Now the first one is on the foreclosure list as the plaintiff. May I ask if there is a title problem if I bid this one?
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