Purchasing a second mortgage in foreclosure

[Todd Ryan]

I’m researching properties and found a nice duplex that is going into foreclosure. After a few phone calls I found out that the foreclosure is for a private money 2nd position lien. Is there any advantage to buying this note? As of now,it looks like the 1st is solid and not going into foreclosure.

Thanks

[Ron S.]

Originally posted by @Marco Bario:

The senior lienholder would call the loan. You'd have the right to pay it off as would the previous owner. It's doubtful the previous property owner would do so because they'd only be adding to your equity position. 

A potential backup plan should that happen (generally it does not) is that you'd refinance, or write a check if you're in a position to do so. At that point, it's possible the lender would agree to a discounted payoff to avoid the time and expense of foreclosure.

There is zero likelihood of the senior discounting the note, especially if the buyer acquires the property at the junior lienholder's foreclosure sale. There is absolutely no incentive for them to discount the note, and every incentive for the buyer to pay them off in full, otherwise, they (Buyer) risk every dime they spent on the sale and, they just put the senior into a great position by doing so. They will hire F. Lee Bailey to do that foreclosure, and fly him in from Scotland on the dime of the junior lien holder. I supposed its possible they would discount it but, it's also possible the Republican's and Democrats will stop behaving like children.

If you buy at the junior's sale, i'd be prepared to pay off the senior. Only an inept lender (I suppose there are a few) wouldn't start foreclosure immediately. They could go into foreclosure without the 120 day rule due to the default on the junior lien. That saves them lots of time and money.