Help - Our Inherited Note is going to Sheriff Sale - what happens?

Question

A few years ago we inherited some rentals & a few notes. One of the notes was in the foreclosure process. It is now scheduled to go to sheriff sale in a couple of weeks. The balance owed is around $100,000. We want to sell this because we don't want the hassle. We told attorney if we could get $25,000 for it then so be it. He tells me I have to send him a certified check for 20% of what we want to bid in our name.

I don't want to seem stupid to the attorney. And I don't care for this attorney anyway. But we inherited all this. Why do I send money to buy our own note back? If no one bids do we get our 20% back? Can someone explain. Thanks.

I don't want to seem stupid to the attorney. And I don't care for this attorney anyway. But we inherited all this. Why do I send money to buy our own note back?  If no one bids do we get our 20% back?  Can someone explain. Thanks.

Wayne Brooks · Answer

Okay, there is no equity above the first, so your note is worth essentially nothing.  No one is going to give you $25k to step into this with no equity to recover their money from.  Why would they?  Would you?

Steve Babiak · Answer

Sorry, but that is not what I would consider first lien position. As long as there is a superior existing lien, you won't be first position. Paying off the first lien is what would make your lien position move up to first, but we shouldn't expect that to occur in this set of circumstances being discussed.

When you proceed with foreclosure in this case, you will become the owner, subject to that first position lien. So for you to then sell the property, that first lien has to be paid off. So if you foreclosed, you might want to see if you could rent it for enough to make it worth your while.

Bob Malecki · Answer

Hi Elaine, connect with me here on BP and I'll send you contact info for an attorney who is good and not a jerk. I'm using them for a 1st position FC in NJ and they have been very communicative and reasonable. You can change attorneys and they can pick up the FC from the current one. I have no financial gain in this referral, just hate to see you getting pushed around.

Bob

Mike Hartzog · Answer

I agree with Bill's assessment.  As the foreclosing lienholder you are in control.  You inherited a situation which may or may not be to your benefit and this needs to be assessed before moving forward.  My advice is to not worry about looking stupid to your attorney.  You should simply admit ignorance and ask the attorney to walk you through the various outcome scenarios so you can gain an understanding of your position for each.  It may be that you don't like any of them and decide to cancel the foreclosure.

Investors who buy distressed 2nd liens look for notes where the borrower is paying the first lien because these are more likely to get a workout, so selling this note is a good possibility, but understand that these trade at extreme discounts so you would likely only get a small percentage of what you are owed.

Steve Babiak · Answer

Subject property is in NJ not PA.

Rick H. · Answer

Alternative: sell the note to a note investor.

One way to do this is to contract to split profits in some fashion. For example, your note buyer handles everything, including paying for and communication with the attorney doing the foreclosure and you agree how the proceeds from sale are divided up

Of course, from a practical standpoint, forcing the liquidation of your 2nd mortgages may result in the property "reverting" to the note holder.

This means that there is the very real possibility of becoming the property owner, having to deal with issues relating to possession, insurance, taxes and paying the mortgage on the first while you marshall the asset and decide how to benefit from this situation.

This is why some pros are not so quick to force the issue of a non-performing note.

Incidentally, I had lunch with Gordon Moss yesterday (author of book on note investing, 'Performance Anxiety').

Such are the choices for a note investor.

Bill Gulley · Answer

Thanks Steve, I haven't done anything in NJ either, I'm more a Midwestern and Southern guy. I missed that with NJ.

You might get a bid from Dave, and Mike is absolutely right as to these being prime targets for a workout.

My posts are rather short, giving Dion a clear advantage to his word count competition in his explanation. I reserve the balance of my time. :)

Bill Gulley · Answer

@Dion DePaoli

@Steve Babiak

I'm not familiar with foreclosure requirements in PA. The requirement of a 20% "bond" or cash deposit may serve several issues, one, payment of costs and Trustee fees of the sale, next, that might be to any bidder at a sale, buying the note yourself could have implications as to the rights of paying off the first, it may also effect rights of redemption for a borrower and that could include obtaining any deficiency judgment and the disposition of the property.

It also matters if the note was a cash advanced loan or if that amount was an equity funded note from a sale. Cash notes and equity notes have different collateral dispositions, cash requiring the sale of the property, equity the collateral may simply revert back to that seller and there wouldn't be any deficiency.

The deposit may only apply to non-institutional notes, or again, it might just be the Trustee wanting to ensure payment.

Either way, you'll have a fist in front of you, either assume payments or pay it off.

It's kind of late to learn how to value a note, like saying how do I learn how to appraise a property and then do a market study to find the most probable sale price through private and public sales. Notes are more complicated than the collateral.

Another matter, if you don't have the funds to foreclose, why do it? What is required is that you not allow your note to become "stale" that you continue to seek payment keeping the note valid and not abandon your rights to collect. I've sent collection letters every six months as an effort to collect and just let the owner continue paying down the first. Eventually, something usually gives, the first steps in and I deal with that or the owner sells the property paying off much more than I'd have gotten by selling it. Banks don't do that, they need to get non-performing loans off the books, I don't. Your other option is to stop the foreclosure, the cost is still a cost of collection and can be added to the note, check the note and deed of trust terms.

@Dave Van Horn  deals in non-performing notes, he may have had some in PA, I haven't and foreclosure requirements are state specific.

You may not like the Trustee, but s/he has an obligation to you in acting in that matter, ask them the best course of action and yes, you may need to pay for additional consultation, or ask your attorney if you'd rather not deal with the Trustee, the Trustee can also be changed by the note holder with the stroke of a pen.

I suggest you put the brakes on until you get specific guidance on this matter. :)

Frank Buono · Answer

Hi Elaine,

Well it looks like you inherited an interesting situation. The note is most certainly worth something and has value. The question is what is the value?? I agree with Dave as to the note has some good qualities.

I buy notes like this all the time and in NJ. You should have a second position note  investor give you an evaluation and then determine if it is worth going forward. You can even partner up with a note investor where they will pay for all of the workout costs and split the profit  with you. This way you have no risk and you will learn the process while getting the highest price for you note.

Good luck and enjoy the education.

Thanks...

Frank

Dave Van Horn · Answer

Hi @Elaine Griffin,

Although I understand your confusion, there are a lot of positives to your current situation, as the property is still occupied, their current on the first lien, and you're close to an exit. If you have any questions or if you would like the contact information for my NJ attorney, please feel free to private message me.

All the best,

Dave Van Horn

Help - Our Inherited Note is going to Sheriff Sale - what happens?

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