Buying a subordinate lien for redemption rights?

Question

Hey BP community, I'll take my best shot at making a complicated question easy to understand without leaving out any important details... Here goes!

In Michigan: A house sold at a county sheriff sale to an investor for 35K, it has a value of 90-95K. The bank that held the 1st position mortgage was the one that foreclosed, and the investor overbid the bank by $1 to gain the sheriff's deed. There is a 6 month redemption period according to the SD. Redemption period expires in about 45 days.

I contacted the owner of the house to find out if I could buy his redemption rights - he had already sold redemption rights to the investor (he bought them to secure his interest). Owner did however clue me in that there was a junior mortgage for 80K. So, I called that bank today and it seems they will sell me the note for cheap – a few thousand (I don't think they want to own another REO property) What I am hoping to achieve is to have an interest in the property so that I can redeem it myself for the $35,001 plus interest and redemption fee.

I realize no one is offering legal advice, and I am awaiting a call back from a property attorney. I simply want to get a few takes on the strategy to compare. My specific questions are:

1)Does owning the junior lien automatically give me redemption rights, or do I actually need to foreclose? Michigan is non-judicial (I believe…)

2)Say that I redeem as a junior lien holder, would the original investor who holds the sheriff deed be able to redeem it back? (he bought redemption rights – meaning original owner quit claim to investor – I don’t know if this gives the investor any right to redeem or just that original owner surrendered any rights?)

3)If investor wants to or is able to redeem back from me, would he have to pay off my note amount of 80K?

Thanks in advance!

Geof Greeneisen · Answer

@Scott VandenBerg I don't know if Michigan is different than other states but here is my experience buying at sheriff sale. Once a note is purchased at sheriff sale all secondary notes lapse after the expiration of the redemption period. In Michigan redemption rights can be purchased. Once purchased however, the second mortgage can be reactivated. That second then must be foreclosed upon. @Aaron Yates is a little off in that any deficiency judgement the bank may have claim to, lies with the original owner, not with any buyer at a sheriff sale. If you purchase the $80k second note, highly discounted, say for $2k (as example) you can only foreclose for the amount you paid not the original value of the note. I don't think there is a good way for you to get back into this deal that has a decent likelihood of success.

John Rooster · Answer

I suspect you are using some incorrect terms, specifically when you say that the owner sold his redemption rights to the investor, you probably mean he gave him a quit claim Deed. Since this sounds similar to the old CO law, I will answer in that context, but redemption rights are soley a product of State Statute, and you best read said MI Statues if you are going to be a foreclosure investor, and not rely on people on the internet. If you can buy the 80k Bank 2nd DOT for a few thousand dollars (seems unlikely to me, but maybe you got lucky) you will effectively control, and upon redemption will own, the property and there is nothing the other investor can do other than paying off the 80K DOT, which seems improbable to me. This is also assuming there is not some intervening lien between the foreclosing DOT and your "2nd" DOT. I would be concerned that there is some flaw in the 2nd DOT if the Bank is willing to sell it so cheap

Aaron Yates · Answer

@Scott VandenBerg , I'm not very well versed in this subject but I do know two people who do this every week. One thing you need to be careful about is that the bank can still legally come after the new owner for the balance of the loan after the sheriff's sale. I'm still unclear whether it is only possible if the investor becomes the occupant of the property or not. I have conflicting answers on this topic. My Real Estate Agent buys every week at the Oakland County Sheriffs sale and deals with the redemption stuff daily. From what he tells me, if you are not already experienced or don't have someone to physically show you the ropes then it can be a huge risk to get involved with sheriffs sales. The other person I know who deals with this alot is on the radio show Real Estate 411. Annette Compo You can contact here using the information below. She has a team set up that specifically deals with Sheriff Sales. http://realestate411now.com/ 1-877-annette

Bill Gulley · Answer

Geof is the most correct sounding to me. MI may have some other arrangement or we may have our "redemption" rights misaligned. As to a lender going after an occupant, who the heck is Annette, a guru or an attorney? What I can guarantee you is that a lender may not seek any payment on any mortgage unless that person signed that note as a borrower or to guarantee that loan. After a foreclosure the lender seeks a deficiency judgment against the borrower(s), absolutely not an occupant. :)

Aaron Yates · Answer

Aaron Yates · Answer

Im sure each state has its own rules but I am talking about Michigan. In fact mybagent was suppose to come tonight and share what he does with sheriffs deed sales but I have not gotten confirmation. My point is that you need to be in touch with people who do this every week and are experienced. Contact Annette. She will have the best answers for you.

Scott VandenBerg · Answer

@Aaron Yates could this simply be a difference in State laws?

Aaron Yates · Answer

Hey Geof. This is why I said I have conflicting answers. Ralph Roberts says that the bank can only go after the original owner but Annette Compo says they can go after the new owner as well and both for up to 7 years. I posted her info so she can be contacted directly about it since that is what her team handles on a daily basis.

John Rooster · Answer

I find this statement very hard to believe

Wayne Brooks · Answer

Aaron, I find it hard to believe the foreclosing bank can come after a new buyer for any unpaid balance on the note being foreclosed on. Are you sure about that, or did you word it wrong? If a second foreclosed, then yes the first would still be in place and would have a claim, but not the foreclosing party.