Going to foreclosure

[Dmitry Semenov]

Hi all,

I have a 1st position loan secured by property (non-owner occupied rental, WA state). This property also has 2nd lien, brokered by the same broker. I'd like to keep relationship with the broker, so I also don't want 2nd to be screwed.

Both 1st and 2nd in default, so we are going to foreclosure. Broker wants to foreclosure on 2nd, so it wouldn't get wiped out.

Both 1st and 2nd are at 65% LTV, so as a 1st I feel pretty safe here.

What are the pros/cons for me as a 1st lien holder if the 2nd goes to foreclosure? Are there any risks for the 1st?

[Natalie Schanne]

Dmitry Semenov - the purpose of your first lien is that you get priority payout. They’re in default and you should foreclose. At the foreclosure auction / sheriff sale you have the lawyer bid on your behalf the $$ you are owed plus any interest and fees. If the second position person wants to pay YOU off in full, great. Otherwise, it’s their loss. You control the transaction. Unless they foreclose first, then they owe you payments on your loan to make you current, and hopefully will execute a plan to rehab and sell the property. If they don’t pay you on your note, then you foreclose on the new owner (2nd lien / whoever owns that now) and you own all the equity for whatever you paid.
I.e. Property worth $100k, at 65% LTV, 1st lien maybe $50,000 second lien $15,000. If you foreclose and nobody pays you at sheriff sale the $50,000 plus lawyers fees plus accumulated interest, you own the property 100% and you don’t owe second lien anything. Second lien people KNOW this which is why first lien gets like 6% interest and second lien gets 10-12%. It’s not personal, it’s business. If 2nd lien comes to you with a plan to give you $$ to catch you up on payments, get it signed in writing then consider letting them foreclose at their expense. Don’t let them convince you to take less than 100 cents on the dollar if they put money in their pocket.