Opportunity to buy a First position note
I have an inside line on a SFH that the bank has initiated foreclosure on. They have not yet finalized that process however. The homeowner's have vacated the property and it needs roughly $25K in work. They owe $70K on the first mortgage and did open a second mortgage in 2006 for $20K--remaining balance unknown. The home would retail for $80K. The bank has (through an agent I know) offered to sell the note to me and as per the agent (this could be in the $0.15-20 on the dollar range. Looking for any insights you all might have regarding this tentative plan.
I would buy the first mortgage for $14K and then foreclose to take ownership . Alternatively I could buy first note for the 14K, negotiate with second to buy for say $1000 and then approach owner with option for Deed in Lieu of Foreclosure. Setting aside $3K for cash to owner and or foreclosure as well as $3K for taxes and insurance, Im looking at $21K to buy plus the $25K to rehab(including carrying costs). That puts me all in at $46K. Alternatively, I could opt to see where the foreclosure sale bids go and elect to let it go to another high bidder and collct the margin. I have experience in rehabs and short sales but never in acquiring a property through buying a non-performing note directly from the lender and then foreclosing. Wondering if anyone could give me insight (speaking very generically of course) into the feasibility of the above. Feel free to poke holes or mention sticking points. And yes a title search will be done before the note purchase and an experienced attorney will be leading the way:)!
What are you looking to get out of the deal?
Completely feasible but I would recommend initiating foreclosure as soon as you have recorded the assignment. You can always stop that process if you find that you are able to make a deal with both the 2nd lienholder AND the owner for a deed in lieu. The foreclosure action starts the clock ticking and provides the motivation for them to deal with you. If you are not able to make it work, then complete the foreclosure and move on.
@Michael Wagner If you can pick this up at the price you mentioned then I say do it. I agree with @Mike Hartzog about starting the foreclosure asap. In NY foreclosures can take as long as 3 years though so be aware of that. I am not familiar with the Western NY FC timeframes - hopefully they are much faster than the rest of NY :)
Originally posted by @Bernard Braithwaite:
What are you looking to get out of the deal?
$25-30k profit from a fix and flip
@Michael Wagner looks like a good deal on the numbers. Can I ask how you found the deal and/or connection that brought you the note?
An agent friend of mine showed me the property along with several others In Various stages of foreclosure. This one had the most potential but we found that it was sitting in limbo. The bank initiated the talks of selling the note so I am of course trying to figure out how much more they know about the owners than I do at this point.
If the bank has already started the forclosure on the note you are buying, you can take over the existing suit by substituting yourself as the plaintiff. That can save some time and expense over starting from scratch.
Are you sure that the 2nd note holders did not start foreclosure? If so then they can wipe out the first....it can be a "first to file" situation.
@Bernard Braithwaite great point, the 2nd could start foreclosure and beat you to it, though it would not wipe out the first, their lien is still valid. At foreclosure you set the opening bid at whatever price you want, up to the total owed. When we foreclose on a 2nd, we don't do that, we figure some decent profit above what we paid for it, as most of the time it does not sell, and ownership reverts back to us, subject to the first lien.
If somone bids a buck more than you, they now own it subject to the first lien and you "cash out." Either way, you can then rehab it and flip or rent out, at a higher price than the first and keep the spread and own it eventually, paying off the 1st.
Or in an unusual case study I am putting together, we sold it back to the person who totally ignored us for the full UPB, as he wanted to keep the house. He ignored us for months, and had no clue we could foreclose on him as owners of the 2nd.
@Michael Wagner I think in the case of the 1st lien purchase above, the 2nd will NOT accept $1,000 for their position, you have to make it worth their while in the $3-5k range and even then, they might not accept it either and if it did go to FC, any amount it sells for over what you are owed goes to them. Like @Wayne Snell & @Mike Hartzog say, this looks like a good opportunity, though check the county records to see if the 2nd has not already started to FC and if not, do it as soon as you can after transfer and hopefully be the first to file, then attempt to work somehthing out with the other party in the mean time. Good luck & keep us posted...
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#2 All Forums Contributor
- Real Estate Broker
- Lake Oswego OR Summerlin, NV
there is a reason NY notes trade like this and that is the time lines for prosecuting the foreclosures.
Not sure how long it will actually take but a lot can happen to an asset in 2 to 3 years while you run it through the process.
@Bernard Braithwaite not correct... your thinking of when the original docs are recorded as to priority in time... has nothing to do with foreclosure... second simply takes title SUBJECT to the first.. If the first forecloses it wipes out everything behind it..
OP let us know what you decide to do and chronicle it for the audience I know this is a popular subject to many
Jay I have been buying 2nds and that has been my experience... Although we have not had to go through and finalize the proceedings if you own the 2nd you CAN foreclose and take possession of the property, this is what gives you leverage and stops people from skipping out on the bill so to speak. I only brought up the point as to say to make sure all the bases are covered.
Looks like good deal. I would leave another 5k for incidentals that come up along the way. You will need to have the borrower sign
Something that gives you permission to negotiate with the second. I have found that if you can get in touch with the borrower, it's best to have them sign a DIL, a consent judgement, a settlement agreement, and the permission to negotiate on their behalf all at once. This will give you all the bullets you need to move forward. You can try to negotiate with the second and if they don't cooperate you have the consent judgment which will speed along the process of foreclosure. If the second does decide to negotiate with you, you now have a usable DIL and can get title to the property very easily.
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@Bernard Braithwaite if you have no equity coverage over the first you get nothing.... First means first and they get everything first... You may hope the first works out an agreement with you but they aren't obligated.
@JayRaught...Im not really sure what you are talking about, but message me personally and we can have a discussion if you like? My question to you is do you buy 2nd npn lien postion notes and if so what do you use as a strategy to have them.perform again? You can answer here because I feel it will add to the overall conversation. Thanks in advance.
Originally posted by @Mike Hartzog:
If the bank has already started the forclosure on the note you are buying, you can take over the existing suit by substituting yourself as the plaintiff. That can save some time and expense over starting from scratch.
I agree with Mike. It's the simplest way. Best of luck!