Did this flipper buy a secondary loan?

Question

I was looking at foreclosure auctions and noticed a house up for auction. It looks like the foreclosure is for the primary loan. I did some research and it was in foreclosure last year, but it may have been for an equity loan.

A certificate of title was issued and he completely remodeled the house. It is currently up for sale.

I'm assuming the flipper will lose everything if the auction goes through (house and rehab costs).

Is this a plausible scenario? Would the county still issue a certificate of title on a secondary loan with the primary loan not being notified?

Konrad R. · Answer

From my research, it looks like they did buy a subordinate loan. It was a home equity line of credit. The complain states that it is the primary lien, but the title paperwork is attached to it. It states that it is a subordinate to another lien. It also had a 13 percent interest rate. It was executed in 2006, and the loan that was executed in 2004 is coming up.

It seems like there were quite a few investment companies bidding. I don't know how they could miss it.

They paid 136k with probably 50k in rehab. I'm guessing they will try to strip the house while they still have possession.

Konrad R. · Answer

It appears that the heirs of the property will benefit the most. The remaining balance after the judgment was satisfied for the second mortgage was sent to them. I'm assuming they will be sent a check for the first mortgage as well. Both bids came in higher than the final judgments for the foreclosure cases.

The second highest bidder on the second mortgage auction owns a duplex down the street from one of my rental properties. I thought he was experienced with foreclosures. He owns around 11 or more properties. I bet he doesn't even realize he dodged a bullet on that one.

Konrad R. · Answer

I was following the court docs on this case. They did buy a second mortgage on the property. They put in 40k in renovations. The first mortgage went to auction and sold for around 153k. The person that bought the second mortgage put in a motion to vacate the sale based on them not being notified. The motion was denied.

It looks like they lost 176k plus any holding costs. Ouch. That is a very hard lesson learned.

The house was listed for around 240k while the first investor had it. I think they listed too high. The new owner could probably sell it for 220k to 225k. Seems like a good profit since it is ready for sale. I was going to bid on it, but I didn't have enough time. I was also worried that the house would be stripped and/or damaged due to them getting angry at the situation. There were also potential attorney fees that could have added up. It looks like the current owner had to hire an attorney to handle the motion to vacate.

Bruce Lynn · Answer

I have sent this plenty of times.  My guess is they had no clue....bit then again maybe the do.  Maybe they can rehab and sell and pay off #1....   Heard a story one time back in 2008 where a lady was buying HOA liens and then living in the property until 1st foreclosed and would evict her.  Ultimate house back.  Doesn't work for everyone but might work in the right circumstances.  Maybe works with AirBnB since you could be renting nightly.

Odie Ayaga · Answer

Yes a second can foreclose and take over subject to the first. It then gives them a number of options to proceed of which, doing rehab and being foreclosed on by the first likely is not the desirable one, but is possible.

Doug Smith · Answer

Without seeing the filings I wouldn't know, but I do see a lot of newer investors buying foreclosures off of the subordinate liens, both second mortgages and, especially, HOA liens. The buyers think they've gotten a great deal only to find out that, although they now own the house, the superior liens still are in effect. The new home owner isn't responsible for the note, but their new home still serves as collateral for another lien. I see it happen a lot. I assume that you are looking in Orange County on "RealForeclose"? Try searching on the county comptroller's site at ...(I just tried to put the website in here but it won't let me enter it). Simply google "Orange County Comptroller Search" and you should get there. Good luck.