Best states to buy NPN seconds?

Question

I am looking into purchasing a few NPN seconds with the intention of attempting to get them re-performing or offer a reduced payoff to settle.  I will be looking for houses with the first lien current.  I understand that foreclosure is a useful tool to get the borrower to surface and talk.  I anticipate at a minimum sending out a “Demand Letter” or “Intent to Foreclose” Letter, but in the event that I need to actually go the entire foreclosure route, what states offer the least amount of time to foreclose?

I downloaded a .pdf from realty.trac that shows foreclosure laws and procedures by state.  It appears that TX and GA are good states for a quick (2-3 months) resolution – others like NY take a long time (445 day process period) other states have a 365 day redemption period (talk about putting the funds on ice…).  Are redemption periods applicable to seconds?

But I am sure that there are variables that don’t show up on a neat little chart that can trip me up.  I will be starting off small with a small portfolio of around 3-4 notes to spread out my risk, but I don’t want to get stuck in a state that will tie up my funds for years.

If I was to buy a few NPN second notes in a few states with a performing first – where should I start looking?

What is your experience?

Thanks!

Dave Van Horn · Answer

Hi David,

Yes, redemption periods apply to 2nds or any other secured lien that's foreclosing. Dion is also right about Deed of Trust (DOT)states having a quicker foreclosure timeline. You should make it a point to be aware of redemption and ejectment times.  (For example, AL is a DOT state but has a long redemption, I believe one year. DE has a long ejectment time, @ 6mos.)  As for finding loans, I started buying from smaller servicing companies.

Best,

Dave

Dion DePaoli · Answer

Not really an investor of second liens.  @Dave Van Horn runs a fund which invests and trades seconds.  He may want to chime in.
	
	The list you have does indeed have the timelines it sounds like.  GA and TX are non-judicial states.  Other non-judicial states are similarly quick in time to foreclose with no contest from a borrower.  Judicial states tend to be longer in time and the longest include NY, FL, PA.  
	
	Yes, you will have to observe the state specific rights of redemption which include rights for the borrowers as well as other lien holders on title.  
	
	In the US, all foreclosure is preceded by some form of Notice of Default which has a couple of different names.  You have to put the borrower on notice they defaulted, allow for time to cure before proceeding with the remedies afford in the security instrument and according to state and local law.
	
	The state of Georgia requires any investor who holds an interest in a Mortgage or Deed of Security to hold a state issued license.  Point is, you will want to review the state laws around mortgage ownership to ensure you don't own something that you need a license for in a particular state.  You can research those at the state department of finance on the web or by calling.  
	
	Dave can give you more insight on the likelihood of reinstatement of seconds and perhaps how to identify them.  I believe his firm also sells loans which are already cash flowing, if that is really what you want and don't want the heavy lifting actions and risk associated with making the right purchase choice.