I have a very goood friend that is in foreclosure. Alon
Submitted by darcomey on Wed, 05/14/2008 - 7:39pm.
I have a very good friend whose home is about to be sold at the courthouse this Thursday.
Wacovia bank, and a second lien holder $35,000, and me $18,000 (3rd lienholder) are all lienholders on the home. I would like to buy this house, but I do not know if it is possible for me to purchase before the courthouse sale. OR is it to my benefit to wait for the sale.
Please advice me as to how to buy this house and what happens to the second lien holder in the transaction? If he is on title, how does the bank grant me title in my name when the title is not free and clear?
ANY information woud be extrememly appreciated.
Comments:
Hello,
You didn't say how much the balance on the first is, or the value of the home. As such I'm going to assume there is sufficient equity that it is worthwhile for you to protect your loan in 3rd position rather than just letting it go to sale and taking your lumps.
As a junior lien holder you have the right to protect your position in the property. As such you can pay the first mortgage current, and even continue making payments. Any amounts you advance to protect your position in the property get added to your outstanding principal balance. At this point you can foreclose on the homeowner yourself as their failure to pay their senior loans is likely a default of your agreement with them, or they can give you a "deed-in-lieu" of foreclosure at which point you own the home (though the senior liens will still have to be paid). This is the cleanest approach and would benefit the homeowners credit vs. completing the foreclosure (assuming that you wouldn't file anything derogatory).
A more advanced approach may be to let it go to auction. The reason being is that 97.75% of properties taken to auction received no 3rd party bid, and 2nd mortgages rarely bid to protect their position. As such it is quite possible you could buy the property for the outstanding balance on the first - or possibly less as lenders now discount the opening bid by 25% on average. Assuming a $400k first, and the $35k second, this approach could save you $135k vs. bringing the first current (the 2nd and 3rd mortgage's security interest in the property are wiped out by the first's foreclosure). The primary issue with this approach is that you will need to be prepared to bid - in cash - up to the amount needed to protect your loan ($400+$35+18 in our example).
In any case you have enough at stake here that getting some help from competent counsel might make sense. Make SURE they have real foreclosure experience if you do. And of course please feel free to ask more questions here, though note that I am just an investor, not an attorney.
thanks for all the information. I am really new to all this, and trying to take it all in. Please forgive any questions that may seem obvious.
The outstanding loan on the property is about $284,000 and the value of the property is about $370,000. Am I understanding you to say that I will not have to pay off the 2nd lien holder, to the tune of $35,000? If the 2nd is not satisfied, how do I get title in my name, when he is listed as a lien holder?
When you speak of me needing to be prepared to bid 400+35+18(my lien amount) I really do not understand. Are you saying that if the bank does not accept my offer of less, I might have to offer the total outstanding balance. Why should I be concerned with the $35K second, if it gets wiped out. So Many question.....
Thanks for your help....
Let me try to simplify a bit. You have two basic choices:
1. Protect your interest in the property by not letting it foreclose. To do this you need to advance funds to bring the first current and stop their foreclosure action. You can then either buy the home from the owner, or have the owner give you a "deed-in-lieu" of foreclosure. This transfers title to your name - but you will still have to pay the 1st and 2nd mortgages.
2. Protect your interest at the foreclosure auction by bidding on the property at the foreclosure auction. If you do not bid at the auction your interest in the property will be wiped out by the sale. If a 3rd party bids more than is owed to the 1st mortgage holder any "excess proceeds" will be paid first to the 2nd (up to the amount they are owed), and then to you (up to the amount you are owed). To protect your interest at the foreclosure auction and make sure you get fully repaid, you must have the cash to bid up to an amount equal to the balance on all three loans. This may be a little tricky to understand as some of that amount is "yours" already - don't worry you will get back your portion when the trustee pays off the debts from the auction proceeds. The benefit of this approach is that if the property sells for less than the total amount of debt, you could potentially save thousands vs. approach 1 above since your goal is to own the house.
If you have more questions, please let us know whether or not you have ~$350k cash to protect yourself at auction. If not then we can eliminate the 2nd option and just focus on what you can do. At the end of the auction all three loans will be cleared from the property, and the successful bidder at auction owns the property.
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