Foreclosure from a second position

[Nick B.]

Hello All!

I read an article by Dave Van Horn about a second position foreclosure:

http://www.pprnoteco.com/ezine-116-4-26-14/

In there he says that it may make sense to do so but does not elaborate on the outcomes. I asked him to comment on the article but he did not respond hence I am asking here.

What happens if:

• a property FMV is $200K
• 1st lien has UPB of $210K and is current
• 2nd lien has UPB of $20K and is more than 90 days late
• 2nd lien-holder files for a foreclosure
• now what?

I understand that the second lien-holder may start foreclosure process but what does he gain from it? If the property is sold for $200K shouldn't the first mortgage be satisfied first thus wiping second one off?

Thanks
Nick

[Dave Van Horn]

Hi @Nick L.,

You are correct, you could start the opening bid at $50K but if they were to only bid $50K and win, they would gain a sheriff's deed for the property subject to the 1st lien that is still attached. At that point the 1st could foreclose against the property and take ownership unless they're paid.

I think my answer wasn't 100% clear, whoever bids would need to bid $150K to obtain the property free and clear.

Also keep in mind if the 1st were heading to foreclosure ahead of you, they would probably start with an opening bid of $100K since they're not concerned about any junior liens (which wouldn't affect them).

Hope this helps.

Best,

Dave

P.S.

If you have any more in-depth questions or still need clarity, I'm co-hosting a free Q&A call with my partner March 21st. We do these call every other month where we discuss a note topic and then open it up to the audience to any questions (even deal specific ones). You can find more info about this month's call here:

https://www.biggerpockets.com/forums/521/topics/41...