Own a 2nd, First is foreclosing, what are my options?

Question

While in the process of initiating FC on a second mortgage, I was scanning Netronline and noted that the first mortgage has recorded a Substitution of Trustee that recorded in front of our SOT. I assume that this means that unless there is some delay, the first will beat us to FC? If so, what options does the second have? (Has equity) At this point, I assume that working with the borrower won't help unless they can bring the first current or work something out with the first?

-Bring the first current, FC and either work something out with homeowner or rent or sell the house to pay off the first? Will the first actually accept a check from the second?

-Buy at FC auction

Are there other options available?

Thanks in advance.

-Bring the first current, FC and either work something out with homeowner or rent or sell the house to pay off the first?  Will the first actually accept a check from the second?

-Buy at FC auction

Are there other options available?

Thanks in advance.

Paul Williams · Answer

You might could ask the first lien for a short sale and pick it up really cheap.  This would save the occupant from a foreclosure, and could get you a nice discount on the note.  Then you're the noteholder and could either offer some options to get them current, or you could start the foreclosure process and take the house back without losing your shirt.  Another option might be to call the 1st position and buy the nonperforming note from them.  Either way should be a lot cheaper for them, and if it isn't, it might be a lot easier, faster and cleaner for them.

Joshua Andrews · Answer

Hi Sandy,

The first can and usually will accept a check from the 2nd position to bring it current. The choice to bring the 1st current should be an equity decision. Once brought current, you finish foreclosure from 2nd position and take possession of the property.

The numbers need to make sense with the idea of still having enough meat on the bone (equity in the property) to make it worthwhile to hold as a rental, sell via creating a new note via owner finance, or REO sale on the open market.

The time it will take to complete your foreclosure in this particular state will weigh heavily on this decision, as you may bring it current, but if it takes you another 8 months to foreclose yourself, the 1st may fall behind again and it may not be worth the effort.

Darren Eady · Answer

I was in a similar situation before and bought the home at auction for much less than the pay-off on the first mortgage.  2nds kind of stink - I hope you get your money back!

Helen Kirk · Answer

There is a you tube video that might help.  It is called "Why seconds come first" by Stewardship Properties Investing.  I haven't made it all the way through the video yet, but it seemed to have some good pointers if you have a second mortgage when the first is foreclosing.  Anyway, you might want to google this subject for more information.

Adrian Tilley · Answer

@Sandy Uhlmann

If it were me, I would redeem.  Basically any junior lien can pay off the senior lien including any interest, costs, attorneys' fees, etc to "buy them out".  If you're sure there's equity, that might be a good play.

John Thedford · Answer

@Sandy Uhlmann

Good luck. I don't take 2nds for this very reason. Years ago I walked away from one and promised myself not to get in that position again. As another poster suggested, if you are sure there is plenty of equity and you have the ability buy out the 1st.

Sandy Uhlmann · Answer

Thanks so much for the advice everybody.  Sometimes I feel like this is a big game of chess.  Everyone is trying to anticipate the next move and how to react to it.

John Underwood · Answer

I am in the same boat. I got the person to file a Quit Claim deed to the 1st mortgage holder. So now the first mortgage holder owns the property and my second mortgage still is intact. It has been a chess game and I'll have to see what happens next.

Steve Vaughan · Answer

Maybe buy sub2 and catch up the arrears as they vacate? Then sell.

Or buy at courthouse steps up to making yourself whole. Be there to ensure it doesn't go too cheaply.

Does it need a bunch of work do you know, Sandy? Is it in your area?

Cody Cox · Answer

Also, if there is enough equity to cover the first and your second, and the bidding tracks above both those loans, you would get paid. The danger is the bidding at the first's auction not exceeding both loan balances.

But, by the first recording a Sun of Trustee, that doesn't mean they will. Eat you to the fcl. The dates are set by the timing of the Notice of Trustee Sale.

Own a 2nd, First is foreclosing, what are my options?

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