Non-performing 2nd available with equity, but both the 1st and 2nd were discharged in Chapter 7 bankruptcy a few years ago. What options would I have if I bought the 2nd?
Discharge means that the borrower is no longer liable for the debt, but the property is. As a lien holder you can exercise your rights on the property. Foreclose from the 2nd position, get possession and sell the property. You need to find out the status of the 1st mortgage. I buy NP 2nds and a lot of the product are Chapter 7 discharges. I like Chapter 7 discharges.
@Bill McCafferty - I am focused on non-performing 1st liens. I would be interested to hear more about how you like to work the 2nds. Specifically, once you foreclose you have the property subject to the first. Are you generally selling or keeping them for rentals while maintaining the first lien?
I'm also interesting in understand your "like of Chapter 7 discharges".
My goal and strategy is to always work something out with the borrower. I force the borrower to make a decision, by foreclosing on the property. When you force the borrower to make a decision, they will. There are 3 outcomes; you get paid (payoff or payment plan), they file BK or they give you the keys. We end up getting the property about 10% of the time. 3 things that happen when you end up with it; flip out of it, if it makes sense, rent it out (pay on the 1st mortgage or don't) or nothing.
It's a numbers game with 2nds. So when you end up with the property, you need to determine if it's worth putting any more funds into it or does it just make sense to buy more 2nds with that money. We all have to make business decisions at this point. I personally try to flip out, rent it out or nothing. I don't pay on the 1st mortgage. If it took me 12 months to FC, it's going to take the 1st mortgage 12 to 18 months to FC. I can control the property and rent it out. I have also made the decision to do nothing. Made more sense to buy more 2nds with the funds, then it was putting the money into the property, to get it rent ready.
With Chapter 7 Bk, a lot of NP 2nds are Chapter 7 BK discharges. Most people don't realize I can FC on the property, but I can because my lien is still against the property. I understand they are not personally liable for the debt, but if they want to stay in the property I'm FC on, they need to pay. When it comes down to either paying or leaving, most pay.
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