Investor · Toledo, OH · Member since 2012 · 292 posts · 35 votes
hello, my local REIA meeting someone asked an experienced real estate investor how to buy a property with bad credit. He responded with several suggestions, one of them the following:
"You can buy the second/third liens for a discount, foreclose for title, and then you're allowed to pay on the first."
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This went over my head. I understand that if you hold a lien against the house, you can protect your interest by paying on the liens above you. What I don't understand is how you can "foreclose for title", I thought foreclosing always forces the house to public auction (and the first position lienholder takes title only if no one else places a bid).
Is it really possible to foreclose directly for title, completely skipping the public auction, with some kind of clever contract clause?
A "foreclosure for title" is still a foreclosure with a public auction. High bidder gets title, subject to any superior liens. If you are the high bidder on a second, you're now the title holder, not a lien holder. I don't know that the first has to accept your payments even if it is current and hasn't been accelerated. You've got due on sale clauses, if nothing else.
A "foreclosure for title" is still a foreclosure with a public auction. High bidder gets title, subject to any superior liens. If you are the high bidder on a second, you're now the title holder, not a lien holder. I don't know that the first has to accept your payments even if it is current and hasn't been accelerated. You've got due on sale clauses, if nothing else.
Thank you! What is the advantage (if any) to buying the junior debt at a discount with this strategy? Seems risky to me to buy discounted debt on a house that's going to public auction (ie chance of debt getting wiped out and/or you not getting title)
You are not a title holder in fee simple. Once a lender always a lender, your interest in the property is that of a collateral interest unless you obtain a deed in lieu of foreclosure, doesn't matter as to the priority of the lien.
Hi Sean, any secured junior lien can FC and take over the property "subject to" the more senior lien(s) if no one bought it at the sale for your opening bid. That's not so bad since you got your payoff amount that was purchased on a loan at a steep discount (although that rarely happens). Now, it's usually just a matter of time before the more senior lien could FC against you if they are not reinstated or receiving some form of payments. But Bill does have a point that you are just the lender up until the time you FC (take title through sheriff's deed) and the borrower has the right to reinstate and/or redeem that once accepted changes your assumed strategy of just "FC for title".