Foreclosing in NY: Can I Combine 1st and 2nd and proceed to REO?

Question

Property Value: $1.6M–$1.8M, and looks great. in Suffolk county, NY.

• 1st mortgage (in foreclosure): $850K
• 2nd mortgage (my position, also foreclosing): $170K
• 3rd mortgage: $610K original balance, probably more now. looks like lender was a private person who didn't check title.
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1st mortgage (in foreclosure): $850K

2nd mortgage (my position, also foreclosing): $170K

3rd mortgage: $610K original balance, probably more now. looks like lender was a private person who didn't check title.

I'm considering purchasing the 1st mortgage, combining the 1st and 2nd balances into one mortgage, continuing foreclosure, and taking the property as REO, assuming no one would bid at auction.

or purchase the 1st, and only continue foreclosure from the 2nd position.

How long after the auction is payment required from the winning bidder? (I couldn’t find this info online)

If no one bids and I take the property as REO, what does the actual eviction process look like?

In case the borrower falsely rents the property, would it actually be an issue?

Is this practically possible? am I missing something? borrower is litigious.Would love insights and thoughts from those who’ve gone through this in NY - Suffolk county

Chris Seveney · Answer

Lots of moving parts here. First where in NY and is it owner occupied or investor loan - as that could make foreclosure 12 months or 12 years....

You technically do not need to purchase the first (unless they sell at a discount), from a second position your lien should give you the rights to pay off the first, add it to your balance and now you are in first position.

But if the balance is $1M on the first two loans, the third position lender if it is worth $1.6M is not going to not bid at foreclosure, they would get wiped out and why would they lose that equity?

Since you mentioned suffolk county, online will say a month but speak to an attorney and they will tell you 9-12 months to evict.

Bruce Lynn · Answer

#1. I would check to see if owner occupied or tenant occupied.  Find out who the tenant is and the relationship.  Is it someone that will fight, like owner's mom, or mistress.

#2. If it is worth $1.6-$1.8, you don't think there would be bidders for the 1st?  Seems like a nice spread that would interest investors.

#3. I would do research on that 3rd lien and know your lien priorities.  Not sure if there are companies in NY that lend on taxes, but if there are they might be in 1st and not 3rd or the lien doesn't get extinguished.

Tim Delaney · Answer

I have not gone through that in NY, but I do own properties in NY (Erie County) and can tell you the eviction process is long and drawn out. Maybe a judge would have less sympathy on a now former home owner that lost a $1.8M house than they would tenants in a class C neighborhood, but personally that sounds like a headache.

Imri Adelman · Answer

Thank you Chad for the important input. This group is a great source for knowledge.

yes, I am aware and willing to risk the amount for the equity and property condition.

Side note - I also believe 1st would pay off my 2nd if needed,even after sale and before proceedings distribution. it might also stay attached to the property, as there's an issue with lien recording priority in my favour. But That's for a different post.

Regarding the lease, I believe it only applies if it was signed before foreclosure began and at fair market value. I would be entitled to collect rent in that case. And the rent is extremely high in the area. Of course tenants and eviction can be a headache.

Chad U. · Answer

Just confirming that you do realize that you're at risk of not recouping whatever capital you've put into your 2nd?  If the property sells at auction for just the amount owing on the 1st or less, you'll be wiped out.  Also if no one bids and the 1st position lienholder takes the property back at foreclosure.

Therefore I would anticipate bidding at the auction to ensure the bid gets over the combined amount of owing on both the 1st and your 2nd.  If you are the highest bidder will need to come up with the funds.

You can approach the first lien holder to see if they would sell to you beforehand, possibly they might sell at a discount.  As for the tenant, you may have to honor any lease agreements that may be in place if they are locked in for any duration.

Imri Adelman · Answer

good points.

# 1 - ill skip trace and see

#2 - If someone wins at auction thats ok, Ill get paid for the discounted 2nd and maybe discounted 1st. if no one bids this is now an REO. question is how much BK, insurance ,p.tax and eviction costs and time I'll need to deal with. looking for someone who has been through this. im also ok with JV with an investor who is going to bid at the auction, if ill find one.

also, this property will probably not sell prior to auction as it has too much debt attached.

#3 - the 3rd lien is another mortgage. checked it.

Imri Adelman · Answer

Thank you Chris, and Good idea with paying the 1st. I'll consider it if 1st won't eventually discount.

property is in East Hampton. Borrower is a private person, not an llc. Im not sure if he lives there or not. He does have other properties.

1sts foreclosure is a few months ahead of 2nd and should be granted moving forward to auction in about a week.

3rd seems like a private person and not a professional lender. I only guess that 3rd wont bid since it also doesn't make sense to lend at 100% CLTV. If they do bid, great I still get paid.

from here I believe its understanding BK, insurance cost ,P.tax, insurance and eviction timelines / costs and see if it's worth it or not.

Any other thoughts?

Imri Adelman · Answer

Thank you - How long is the eviction process in Erie county?

I'm ok with some headaches if there's a reward.

Foreclosing in NY: Can I Combine 1st and 2nd and proceed to REO?

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