Question regarding lis pendens and 2nd 3rd loans

[Jason Mak]

Greetings BP Community,

Was hoping if any experience loan investors could help me out with some questions I came across when evaluation a loan for sale on auction.com

1) Basically, I am bidding for the 1st position non-performing loan. However, there are still 2nd and 3rd liens. If I purchase the 1st position and foreclose on the loan, then the 2nd and 3rd lien should be eliminated provided that the remaining equity doesn't exceed the 1st loan amount right? Or if I'm successful in foreclosing, do the 2nd and 3rd position get completely wiped out leaving me as the sole equity owners?

2) there are two lis pendens on this loan. Do you know if these lawsuits carryover once the property is foreclosed on? Or do these liens get wiped out too?

3) Finally, as I underwrite this deal, do you think it is realistic if I assume about $100k in lawyer fees to foreclose on this property?

Any insight you would be able to provide would be great.

Thanks,

Jason

[Dion DePaoli]

Jason,

It is unclear what state the loan you are talking about the loan is in and that does matter to a certain degree. Your first lien has priority over the other liens provided they are not government liens. So the first lien is first in line to be made whole by the sale of the property. If the property goes through sheriff sale and the proceeds from that sale are insufficient to pay the first lien bid then the property will revert back to the first lien holder. If the bid garners more money than the first position sale bid then the liens will be paid in priority accordingly.

When multiple liens are present and the property goes through sale, the liens will be cleared from title. The borrower will still owe the money which also means those liens will become unsecured. Those lien holders will only be able to pursue collection via the borrower if allowed in the state.

Question number 2 - loans do not have lis pendens, the property has lis pendens. So I am not sure exactly what you mean by this question. I assume that is what you mean, there is two other parties with lis pendens on the property beside you. Those could be the liens subordinate to you. Provided they are the same lien holders they are just publicly stating their interest in the property and that some legal action is to follow. If the foreclosure was being contested, that would be a response to a foreclosure suit and would not show as lis pendens.

Question number 3 - it is not clear what type of property the loan is attached to but even for commercial property $100k in foreclosure fees is way, way, way too high. Again it is not clear what state the deal is in which would matter a bit to give you feedback on your number. Secondly, foreclosure actions would increase in cost if the borrower files for bankruptcy as you would have to defend the BK or if the borrower attempts to fight the foreclosure complaint, provided this is possible in the state the loan is in. On average if you budget to spend 3,500 to $5,000 you should be in the ballpark. Bare in mind, that any advances made by the prior mortgage/deed of trust owner would contribute to the total cost which would diminish your expense on the matter.

If for some reason there is some serious title problems and the other liens fight claiming they have a position superior to you, it may become more costly to defend. But even still you should not come anywhere close to $100k.

It does sound like you should find some experienced party to help you a bit as this seems like uncharted water for you.