Tactics to get borrower to come to the table 2 NPN

[Bret N.]

I have a NPN 2nd note in GA which has no equity. I went through the FC process and now have the deed but the borrower still isn't responding. Based on the communication my workout specialist had with the wife(who is no longer responding and apparently is separated from husband and doesn't live in house) the house may be rented out. I'm sort of at a standstill. Being a fast state, I don't want to spend anymore money to evict only to then have 1st foreclose and I get nothing. I am not sure if 1st is current or not as it seems monitoring the 1st from a second standpoint is not as simple as I thought. What are some of my options or is waiting it out rather than spend any more money on legal the best bet ? As a Broker, I have seen many homes on Auction.com that were listed and of course a warning not to disturb occupiers. Some were even from 2nd position. I would think possibly seeing their house listed on Zillow via Auction.com and/or hungry flippers driving past might get their attention that we are serious. Any ideas? Thanks

[Dion DePaoli]

Let's square you away a little better.  First and foremost you no longer have a Borrower.  The debt has been extinguished as a result of the foreclosure.  The old borrowers owe you zero response.  

Until you obtain a judgement to collect on a deficiency you have nothing to collect.  Attempting to collect on a debt that doesn't exist is against the law in all 50 states.  So you probably need to stop calling the wife before she gets annoyed and reports you and you get in trouble. 

What you do have now is ownership of the property but you do not have possession.  The legal remedy to gain possession is eviction.  That is it.  You can make direct contact with the occupants and see if they want to move or pay rent.  You offer cash for their keys to encourage them to move, if desired.  

If the occupant is one of the borrowers you have to make a formal a demand for possession. You have to give them time to move out which off the top of my head I don't remember what it is exactly. If he/she/they do not surrender possession then your only course of action is eviction.  Period.

If the occupant is not the old borrower you will have a 90 day waiting period before you can process the eviction order by federal statue.  (You can inquire about CFK during that time)  (Even if they are a squatter)  If the occupant has a lease/rental contract from the previous owner you are obligated to honor that lease provided it can be produced and is valid.  You are governed by the landlord tenant laws in the state of subject property in regards to entering and perhaps repairing the property, etc.  

I find it concerning the "workout specialist" does not understand the state of this asset and is walking down the wrong road.  (very concerning)

As a property owner now, the first lien will have to serve you in any action to foreclose.  You will have a right to redeem the property from the senior lien by paying the total due.  You do not have a right to reinstate the senior lien as you are not the borrower.  There might be a possibility to assume the loan but that requires the senior lien holder's approval and a loan that is allowed to be assumed.  

It doesn't sound like you really have a plan to protect your investment here, unfortunately.  Your ownership is inferior to the senior lien and you will remain in foreclosure risk until they are redeemed or actually foreclose your possession out.  Your window to recover your investment is right now.  There probably isn't a way around spending more money here.  That said, if you do not have a plan on dealing with the senior lien you may be throwing good money after bad as senior foreclosure.  You have an obligation to disclose the potential foreclosure to any potential tenant.  Failing to do so gives the renter a right to sue you for rent and damages.  If you disclose and they choose to move in, that is fine.  There is also a chance to strike a deal with the current occupant, whomever it might be, to pay some rent during the window of time, however long it may or may not be, to recover your investment.  

If you have some equity, which it doesn't sound like you really do, you might be able to refinance the property and payoff the senior lien in full. Since you are an owner the loan would be a refinance and not a purchase which would give you some relief from down payment and qualifications. A non-owner occupied - rate and term refinance would be your highest LTV potential. Unless of course you move in and designate the property as a primary.

If you care to share, I am curious, who is the work out specialist?  Is it your servicer?  What is the name of the company?  This is all stuff they should know.