Help with "Shorting a Second" in a "Subject To" Transaction

[Seti Gershberg]

I recently saw a presentation on Subject To transactions and the presenter suggested an advanced concept that involved buying a property that was underwater and had two mortgages. He mentioned you could short the second and create substantial equity. The presentation was basic so he did not go into detail on the concept. I wonder if an advanced investor would be able to explain this concept in further detail?

Many thanks.

[Brett Goldsmith]

I've done these a few times. Basically when a 2nd is underwater you may be able to offer them a settlement. This is generally on charged off subordinate liens. For example; Home is worth 1.4M AS-IS. 1st MTG is 1.25M. 2nd MTG is 700k. Home is underwater. 2nd MTG thinks the home is worth 1.2M. You settle the 700k for around 70k as they think it's dead debt. You created equity.

You find people in their primary's trying to do things like this who are in these posistions.

If a seller would let you try to settle their 2nd and then they also let you take it subject-to prior to settling the debt, it's possible. If it makes sense, it makes sense right...