why buy a NPN in 2nd position?

[Francisco Tejada]

From what I know about short sales, usually 2nd mortgages only get about 1K regardless of the amount owed.
Also I've read that it's not advantageous to start a foreclosure action when there is a mortgage ahead of you. Just curious in what situations it makes sense to buy a note when there is a mortgage in a better position.

[Dave Van Horn]

Francisco,
WOW! I'm not sure where to begin. You said that in a short sales the 2nd only gets $1K. This is totally false. I just received $5500 payoff on a 2nd my company owned in Toledo. We paid $1200 for the low equity note that had a face value of $39K. the 1st mortgage was $105K & the property was worth @ $105K. The short sale went through for $80K.
The 1st , who was taking a haircut, only wanted to allow us to get $2500 in the beginning, but we got them up.
The real answer to your question is it depends. My company literally buys hundreds of delinquent 2nd's every year. If a property has enough equity to back it, you can get a full payoff. We just had one outside Phila. that we paid $65K for, and we got a full payoff of @$120K on it. but there was a boat load of equity. the first was about $250K & the property sold for $620K. As for starting FC, we initiate that on close to
40% of the notes we buy, but we actually FC on less than 8%.
If you buy a loan in a better position, you'll have a higher price pt. & pay more. If I buy a delinquent 1st for $200K, all my risk & $ is tied up in one deal. I might be able to buy 10-20 2nds for the same $$. Hope this helps.

Dave VH