Buying a lien to force foreclosure?

Question

I was hoping someone with lien expertise can help me understand how they work.

Background: a neighbors house has been abandoned for quite sometime now (2009?), property is in pre-foreclosure but bank/company "servicing" the property hasn't done anything. It's essentially a zombie foreclosure. Property is falling apart and township inspection team is levying fines which are ignored by bank/company. Other lien-owners exist for this property (one from PA and another from Australia?).

What I want: I would like the home to be foreclosed so this stupid bank is no longer in charge of this property.

Question: Can I buy one of the new liens on the property and initiate some process to foreclose on it? If so, what are my responsibilities? (For instance if I buy a $500 lien--which I don't mind just to get things to change, can I be saddled with the burden of owning place/fixing it up/etc?)

I am a complete novice and reading up on how liens work hasn't been particularly useful.

Dion DePaoli · Answer

@Kevin B.Let's square you away with the scenario you inquired about.We know there are multiple lien holders.  One of which, in first position, is a large financial institution.  You believe you can purchase a junior lien position for around $500.  What does that mean in the scheme of things?So the first idea that needs to be clarified is what is the lien you are purchasing for $500?  If that is a tax lien, then tax liens have super lien status and can foreclose out all other interests.  If that lien is not a tax lien then it will be subject to the priority in title based on when it was recorded.  Mind you, not all liens have a power of foreclosure.  Any Tax Lien or Mortgage/Deed of Trust will.  Any creditors judgement will not.  If the lien you buy is a second mortgage, then the first mortgage remains superior to you.  A junior lien may not foreclose a superior lien position.  This means, the first lien remains in place until they satisfy and release their lien due to payment or foreclose.  If you purchase said lien and foreclose, the resulting process will send the property itself to foreclosure auction where you will you will define the amount you will take at a minimum to release your lien.  We call this the reserve price.  Some reserve prices are subject to minimal amount requirements.  Moral of the story is, either someone at auction either buys your interest in the property whereby you get paid the reserve upto the total due under the lien or the property does not sell and it reverts to you as an property owner.  If the property reverts to you, YES, you are now the owner and now liable for the property.  Just like any other owner.  (The former owner no longer owns an interest in the property, you foreclosed them out.) Your ownership is Subject To (read as: Inferior to) the rights held by the first lien holder.  So the first lien holder can foreclose you out.  However, they can only do this once they give you a chance to redeem the property from their debt.  If the property is in distress, they may be willing to short the amount they are owed - taking less than what is totally due.  They don't have to do that though.   They must give anyone with an interest in the property that right but only once that right is established.  In other words, they don't have to tell you anything until such time as you are the owner or lienholder.  Not while you are just an inquisitive party.  Depending on the geography of the property and municipality, the city can continue to levy fines and lien title for unpaid fines or in some cases cities have pursued civil lawsuits against owners.  If you become the owner, these liabilities will be onto you.  As others have suggested, if you are just trying to cure a blighted property, best bet is complain to the municipality.  Throwing $500 dollars at this doesn't likely get you much of anything except a waste of money and stepping into a potential hornets nest you don't fully understand.  Just because you think someone else would want to the property to fix up doesn't mean someone else wants the property to fix up.  Only act based on your own interests not speculating on a 3rd party.  Good luck.

Dion DePaoli · Answer

@Rome Wells Wells I will attempt to explain like Dion but at times I just sound like me.....The pivotal part of the plan that is described is whether or not it is likely that the property will not be bought at auction but rather revert to the Mortgagee post auction.  This is going to be market drive to an extent since in some markets investors are more aggressive at auctions.  Obviously, other features will also influence this such as the value, neighborhood, and level of repairs.  It is possible to target loans which have negative equity and as such sending a property to auction with negative equity will likely lead to no successful bids.  However, someone could see an ARV that they like and bid up the property to pursue the chance to own, fix and sell/rent the property.The point for newbies is to understand that you as the Mortgagee/Beneficiary are only due the sums owed under the terms of the note.  The Mortgagee is NOT entitled to the real property.  I think that address the core of your question. Rome if you wish I am happy to verbally discuss your plans with you if you want to PM me and set up a call to discuss further.

Brett Goldsmith · Answer

Depending on the lien position though you could foreclose, take ownership, then you could get foreclosed on by someone in a senior position to you. Basically the 1st mortgage is secured by the property's value. Unless if you are taking their position, they will likely wipe you out at some point if you're coming in on the tail end with some small lien.

This will cost more money than $500 and will take time. My concern is that depending on what liens are on the property, you may assume some type of liabilities, waste time, and money.

Jay Hinrichs · Answer

@Kevin B.  I know personally as a lender I have let my collateral go to tax sale in the hopes of getting overages at the tax sale..its free we as the lender don't have to pay for anything the county or city does..

Its a tough problem in severly blighted areas of the US that are simply functionally and social obsolete.

Kevin B. · Answer

@Dion DePaoli

Really appreciate the detailed response. Probably the easiest to understand description of foreclosure process I've read.

@Jay Hinrichs

I think that's exactly why the bank doesn't want to do anything about the property--they don't see any value in paying more money to get the property off their books. However, what really sucks is the city can't seem to enforce them to pay the fines levied on the property.

That's really the biggest issue with these abandoned properties, is despite the blight in the city, the inspection team seems completely powerless in enforcing code and taking over vacant structures. NJ state laws are no help either.

Jay Hinrichs · Answer

there are circumstances the banks are finally realizing that to do nothing is better financially for them than to foreclose.. IE cost of foreclosing does not bring them much if any money and they don't want to take title then get stuck with all the city liens.

when I was funding deals I Detroit I saw this a lot.... bank actually having to bring in money to sell.

Rick H. · Answer

@Kevin B.Your situation is problem solving, not profit oriented. Keep that in mind.

My suggestion is that you focus on protecting your family's security and your home's value from the blighted property. That means squatters, party people and drug manufacturers.

Odds are, you can gain an economic interest in the subject property but it will provide little resolution and limited control. Plus, once the lender forecloses your equitable position will probably be wiped off, putting you back to square one.

Yes, it is possible to purchase some lienhold positions, including judgments, but it's very cumbersome way to acquire title.

Therefore, I'd put your effort into securing access and keeping the weeds clear to deflect attention.

If you go the political route, a court-appointed receiver can be appointed to "marshal the asset" in order to secure and force the liquidation of the asset IN REM for the court. This route is definitely not for an amateur but it is available if there's sufficient political will on the part of local authorities.

Bob Malecki · Answer

If its a local bank you may have a shot at it. If its one of the big five banks, don't waste your time, they don't sell off single assets

Account Closed · Answer

The first lien holder (bank or other corporation as you mention) isn't going to let you foreclose on the place.

Taking possession of a property like that is going to invite a lot of work and headaches on your part.  You will need to have electrical re-certified before you turn the power back on and it will probably cost more than what the house is worth.  More than likely, there will be plumbing issues (stolen copper pipe, etc.) as well.

The best course of action is to complain to the city.  This includes complaining about high grass/weeds (the city will mow them and bill the homeowner of record) as well as snow removal.  The city will eventually condemn the place which forces action upon the lien holder - they have more power than you do to force things in this situation.  The city probably has a law on their books allowing them to take over the property given certain circumstances...unless they know about it, they can't take action against it.  Your complaining to the city will let them know about it.

Rome Wells · Answer

Thank you so much, Dion for responding. Great explanation once again.  I had no idea that you would respond but thank you so much for responding and clarifying.

Yes, indeed idea would be to find a property that people would be discouraged from buying at the auction.  However, even if they do buy it... is there such thing as I still win If i was to buy the lien...? (or maybe I am way overthinking this and there is simply no such thing... buying with negative equity seems like one of the ways but I am still struggling to understand it Dion )

Therefore question.. Is there any way for me to buy the lien in such a way that no matter what happens I still win either on being able to acquire the house... under market... rate... or get paid for the lien plus interest.

Meaning to somehow leverage double synergy here... where my intent is yes... to buy the house under market price so I can fix it and flip it.... however since i realize other people have the same intent maybe I can just buy the tax lien for example (on purpose to discourage others from buying property and gaining advantage)... and let's say the property doesn't sell on the auction....

then I can proceed with foreclosure process after talking to the owner perhaps and discussing with existing owner options.. such as... hey... you can either sell me this house for this much or I will begin foreclosure process and no matter what you would pay this amount plus more...  is there such thing what I am describing?

Also if... the house sells at the auction.. then that's also good I still win since I bought the lien.... and the new owner who bought it from auction (who also has the same intent of fixing and flip it) must pay off my lien first before being able to sell it... and although I won't win on getting the property I still win on the lien... where I get back my money for the lien plus the interest...

Do you happen to know or anyone happen to know if this something that other folks doing?  Where they leverage the liens as part of this fixer-upper synergy.

You see trouble is... i can't even explain right what I am talking about... simply because I am not sure if this is something that is even possible or not... You see I don't even know how to phrase this question properly, because although I understand conceptually how this works... I still can't seem to see the dots yet connected...

My goal is to simply get the properly under market without going through any wholesalers or any middleman using this lien synergy concept, where no matter what I still win... regardless if the property is sold at the auction to someone else or sold to me...

If it is sold to me then I would fix and flip it... if it's sold to someone else then i will already know that my lien will get paid off... (by new person... who buys it... or is it dangerous to assume that...?)

(note when I say i want to skip wholesalers... I don't mean it in a harsh way... I mean if wholesaler brings something that makes sense from ARV perspective I won't count their money... however based on what I heard from other folks some wholesalers simply do not know... the ARV unless they are an investor....)

It would be really great Dion if we can discuss it verbally or I can maybe PM you a bit later today.  It's just I am so lost with these liens... not because I don't understand them... I sort of do... but because I can't seem to connect the dots yet... or can't see the patterns yet...

Although you did mention this negative equity... it kind of lit some light bulb in my mind... but still... i am a bit lacking the rest of the dots... requiring a bit more clarification.

Buying a lien to force foreclosure?

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