Turn a bad note into a good flip.

3 Replies

I have had a string of buying vacant 2nds in the past 6-months(although I thought they were occupied based upon the credit reports and the reputation of the seller. Eitherway, I'm a big boy and will shoulder the blow). 

To the point, how plausible is it to just follow the 1st and either contact them and/or wait for auction and buy it on court house steps and then flip the property?   I am a flipper too and wanting to expand out of state.  Or should I just cut my losses? 

I have a colleague who has done this before. It can work, but I think if you're buying notes, especially in 2nd position, it should be more of a fallback option than the primary goal.

Well I would contact the senior note holder if possible and see if you can buy their note at a discount, else wait for the FC auction. If there is some CLTV equity you may get a payment from the auction proceeds. You could also file foreclosure from second position subject to the first, then liquidate the property and pay off the first if there is enough equity for both loans.

Might be a good idea to contact a local RE agent in the area of the subject property to do a drive by before buying the note to determine if it is indeed occupied!


Cut your losses?  Not sure losses here are quantified.  

Just because your lien is in second position and the property is not occupied doesn't mean you auto-lose.  The rest of the metrics of each loan and property matter.  

Aside from what is stated above, if the first lien on the property file for foreclosure and there is sufficient equity to pay those liens off in full, then you do not need to wait for foreclosure auction.  Once the first files for foreclosure you can pay off those liens because the second lien has an interest in the property and a right to redeem.

If the balance or payoff of those loans exceeds the value of the property then as stated you will want to first try and purchase the loan from the first Mortgagee and second purchase the property at auction.  Remember if the first gets to auction - your lien is wiped out.

Both of those rely on the current value of the property and the amounts owed under each loan.  Any idea what those are?

There are still many variables in all this one of the major ideas is that the auction and the foreclosure mortgagee allow for you to actually make a legit bid at auction.  Many firsts can eat up all the equity by themselves.  The first mortgagee doesn't have to send the property to auction for any less than the total amount due.   

By loans, especially those in junior positions to flip properties is not all that many think or say it is cracked up to be.

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