will the junior lein get paid

[Robert Grefe]

A friend own property in New York, with 3 others on title, there is a 1st trust deed. I want to lend money, and place a junior lien on the property to protect me. If the 1st trust deed forclose on the property, and the property sell for more than owe to the 1st TD, will the Junior lien (me) get my money owe, or will the money goes to the 4 owner and I will have get it from the friend?

I want to make sure the Junior lien (me) get the my money back.

any information will be helpful

[Jon Holdman]

Here's three simple rules as a hard money lender:

1) 70% LTV ABSOLUTE MAX!!
2) First position only
3) Don't lend to friends or family if you want to stay friends.

On the first. YOU choose an appraiser. Someone your friends do not select. Have your friends pay for the appraiser, but you pick. Then, you want every dollar you lend to be below 70% of this value. That is, if the appraiser determines the value is $100K, and there's an existing lien for $60K, you would lend, at most, $10K. If the existing lien is $80K, you don't lend. End of story. If your friends really, really need the money and you really, really want to help, just write them a check and be done with it.

You really don't want to be in second position. If that $100K property sells for $100K in a normal, retail sale, it will net them, at best, $92K after all the costs. In a foreclosure situation, it will be much less. If its more than the lienholder is owed, you would get the overage. However, if the first loan has a balance of $70K in my example, and they foreclose, the total amount will be more like $80-85K with all the fees, overdue interest, and legal bills. If that $100K property sells for $85K at auction, that would be a very good result. But you still get NOTHING.

Don't know foreclosure law in NY. If you do this loan, you MUST know the law. Here in CO, if the first foreclosed, and took the property, you, as the second, would have to "redeem". If the first took the loan, it means nobody bid more than the first lienholder's opening bid. You would have eight business days after the sale to file that you intend to redeem. To redeem, you would have to pay the first lienholder the amount they opened the bidding at, plus some fees and a tiny bit of interest. If you don't pay, what happens? Your lien is wiped out. Completely. Totally. Irrevocably. "Paying off the first" means in cash.

Unless your postion is at a very good LTV, like 60% or less, your second loan is nearly worthless. Just write them a check now and forget about it.

What happens if they don't pay? "Hey man, we're a little short this month, we'll catch you next month, OK?" No, its not OK. 30 days (or whatever your law says) later you file for foreclosure. You MUST, if you want to protect your loan. If you can't bring yourself to do this to your friends, just write them a check right now and walk away. Because that's going to be the end result. Much less stress to write them a check now and say "I never want to see you again."