How to find out balance of 1st mortgage...?

Question

Hey everyone,

I'm considering bidding on a foreclosure at an auction property-  but it's a second mortgage, which means I would still need to pay off the 1st mortgage if I win.  But... I can't seem to find out the balance on the 1st mortgage. I can see what it was 15 years ago (via public records) but this property has been in foreclosure for half of that time, so who knows what its at now.

When we called the bank to ask - the bank with the 1st lien position mortgage- they said they would not be able to reveal that info.

So... how do you experts do this?  There must be a way to figure this out!

Thanks!

Chad U. · Answer

To get a ballpark figure, you can make some rough assumptions based on the following:

- is it the 1st or 2nd that has been in foreclosure half the past 15 years?

- if the 1st has been as well, see when the Lis Pendens or Trustee appointment/transfer was  filed (Judicial or Non Judicial respectively, not sure what HI is) on the 1st.  This is commencement of the foreclosure process

- use an amortization table to this point, minus one year or more, to determine approx loan balance (UPB)

- assume payments have not been made on the 1st since then

- use the interest rate on the note and apply to the UPB til today's date to determine interest arrears owing

- assume property taxes haven't been paid by borrower and advanced by lender since default, this gets added to balance

- add in approx insurance coverage that the lender may have advanced (Forced Place Insurance), to this balance

- legal fees are the big unknown (and not sure they are recoverable in HI), but if there are a lot of filings then can assume fairly hefty amount, say $10K+.  Otherwise you may want to factor approx $5k.

Add these all together and will give you a ballpark figure on the 1st's outstanding balance/payoff.  If there doesn't appear to be any foreclosure commenced then perhaps assume they stopped paying both at same time and use the 2nd's foreclosure start date.

Would be glad to offer more insight if you want to reach out or send me more data.

Alex Morstadt · Answer

I think the best thing to do is call the borrower and ask - you may be able to come up with a pre-foreclosure deal which benefits all parties.

You never know.

Martin Saenz · Answer

Thanks for your thoughts, Ron. Appreciate your insight.Credco does have options for pulling from all 3 bureaus in the form of a soft pull. I agree that an investor seeking to pick up a property through a 2nd mortgage foreclosure sale won’t have all the tricks so to speak. Perhaps from a real estate investor perspective, they may want to pick up tools that note investors use to help them gain more insight into the properties and borrowers they’re engaged with. I was provided the name of the person associated with the property and was able to find them on PACER and through other legal means. Finding borrowers can lead to finding creditors in some cases. At the end of the day, what is needed is a payoff from the 1st or at least the balance as a bare minimum, whether the note holder will deal with you or not. In terms of my books, I simply wrote those from the heart and from my experiences. That’s not to say, someone like yourself has your own set of experiences. I’m not the richest guy or the most successful note investor, but I’ve provided for my family as a full time note investor the past 6 years.

Martin Saenz · Answer

Thanks @Chad Urbshott.  Unknown 1st are very common in the 2nd space.  There are some strategies you can employ that I can't openly discuss in a forum but what I can say is:

- if the 2nd is foreclosing, then you may want to contact them ahead of the f/c and offer to buy the note.  With that, you can ask them questions regarding the 1st.

- Pull an O&E report and track the chain

- Do a tri merge soft pull and see what it yields

- You mentioned county records shows the original lender from 15 years ago.  Typically county records will show some assignments along the way.  Assume you have done an electronic search.  Have you called the county.  HI can be a very difficult state to deal with but you never know.

- Assume you checked RealtyTrac to see how they present transaction history

At the end of the day, connecting with the 2nd lien holder is your best play as most don't want the property back (i.e. they would prefer selling the note versus the chance of getting the property back).  We want loan modifications and long term stream of cash flow.

All the best!

Greg Gaudet · Answer

Update:

I got the payoff! And it was right at the cutoff of what we wanted it to be. We bid at the auction yesterday and won the sale. It's a fully renovated 800-850k vacation rental condo in a high end beach resort and we got it for 645k.

Should work out well, we don't need to do anything to it, so once we close we'll just throw it up on the MLS the next day. This building is highly desirable and rarely has listings, they sell in a matter of days. Nothing on the market now. So I think we'll do well. Thank you everyone for your help! Especially @Martin Saenz

We might even just sell the contract (since we have until October to close and it's financeable). Then another flipper can make an easy 100k and we can make a quick return without even putting anymore time or money in.

Martin Saenz · Answer

Ron, if you have ever dealt with Credco over the years, you would understand they are a massive organization with numerous programs in place.  Not sure why you are going down such a road on the credit pulling question, however the name of the plan is Portfolio Credit Review which is an addendum to agreement for service.  I'd be happy to share the agreement with you off line as a benefit to you but I'm done here with any back and forth.  Best to you!

Chad U. · Answer

I'll refer this over to my esteemed colleague @Martin Saenz who is a 2nd's note buyer.  Martin, how would you guys determine what the balance on the 1st is in this case?

Chris Mason · Answer

Not a direct answer....

...But the 2nd lien holder wouldn't have initiated proceedings if they thought they'd be underwater after the 1st was done being paid out.

So there is likely some meat on that bone. I have no idea how much. Hopefully others contribute insight into that question.

Good luck!

Chad U. · Answer

Congrats!  That looks like a great deal. So I'm assuming the $645K is what you paid at auction plus the payoff to the 1st mortgage?  You should check with the HOA on any outstanding dues as well.

May I ask how you obtained the payoff?

How to find out balance of 1st mortgage...?

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