You ask: “If I buy out the 2nd’s position do I also have to pursue the 1st mortgage holder’s position?” No, you just have to pay on the first to prevent them from going ahead with their foreclosure. Similar when you own the property, should you buy on the second loan.
You might try to buy out the third’s position for a steep, steep discount, as that is a threatened junior. Threatened with getting nothing if the sale of the second takes place. If you get the third, then you could bring the other two current, demand repayment, and if not forthcoming, start your own foreclosure. Good things only can happen to you: The owner starts paying and you have a current loan to sell for closer to face value, you buy at the sale and end up with the property at a bargain price, somebody else buys at your auction and you get paid the face amount of the loan you bought at a discount.
However, I feel that this approach to investing is really much better for sophisticated investors, not beginners. And people who have lots of cash or immediate access to it via lines of credit. It is not to be done on a shoestring, in my opinion.
I am a newbie investor. I have a number of questions regarding judicial foreclosures:
Yesterday, I met with a homeowner whose house is scheduled to go to auction next week. She informed me that she is filing for bankruptcy today and consequently isn’t interested in selling me her house. How does the bankruptcy filing affect the foreclosure process? Is the debt relieved or just “reorganized”?
What role can an investor play to help “solve” the homeowner’s problem? How should the investor remain involved/monitor this situation to potentially set up a transaction?
Assuming that a house goes to auction and the winning bid exceeds the foreclosing lienholder’s judgment amount, who receives the “excess” monies? Is it safe to conclude that once all lienholders are satisfied that the remaining funds get paid to the homeowner?
Finally, what is the benefit of having the winning bid at a foreclosure auction brought by a second mortgage holder or for that matter any lienholder not in 1st position?
Since the auction is scheduled for next week any advice or insights on how to approach it will be greatly appreciated. Thanks in advance.
I think B.L.Renfrow answered your main question very well. I’ll just touch on your other questions.
Assuming that a house goes to auction and the winning bid exceeds the foreclosing lienholder’s judgment amount, who receives the “excess” monies? Is it safe to conclude that once all lienholders are satisfied that the remaining funds get paid to the homeowner?
Well, yes and no. It’s not actually the Judgement amount that goes to the lienholder, there are usually some publication fees, legal fees and interest that accrues as well. Generally this can range from $400-1,000(Don’t hold me to this).
In my area this amount plus the judgement is awarded to the plaintiff. Any other amounts must be filed for with the clerk of the court. Generally it’s best to get an attorney for these fees, as the clerk is usually very reluctant to pay any other funds out. But, if you press the issue, it can be done. I’m currently fighting this process right now, on a property where I owned a second that went to sale.
Finally, what is the benefit of having the winning bid at a foreclosure auction brought by a second mortgage holder or for that matter any lienholder not in 1st position?
This was a little unclear. I’m assuming you mean a foreclosure sale where the first was foreclosing, and the second came and got the property. Now this doesn’t happen that often. Actually I don’t recall ever seeing it happen, as many times as banks tell me they are going to do it. What this is called is protecting your position. For example. You have a property worth $100k. $20k first going to sale. You have a $80k second. You might have someone go to the sale and bid to “protect” your position. If you didn’t, you run the risk of the property actually selling at $20k and wiping off your debt. Make sense?
Re: How does bankruptcy filing affect foreclosure - Posted by B.L.Renfrow
Posted by B.L.Renfrow on July 23, 2003 at 21:18:38:
The answers are dependent on several factors, some of which include: the type of BK being filed (chapter 7 or 13), what the owner’s intentions are (do they want to remain in the house or sell), amount owed vs FMV, whether it’s the senior or a junior lien foreclosing, etc.
If the debtor is filing chapter 13 and intends to keep the property, they will have to make on-time payments to both the lender and the trustee.
If they miss a payment, or if they file chapter 7, the lender will likely move quickly to file a motion for relief of stay in order to proceed with foreclosure and sale. Once the stay is lifted, they can pick up right where they left off.
There isn’t enough information in your post to provide any reasonable answers. One would need to know the above details and know what you are proposing to determine whether it makes sense.
Remember also that there is no redemption period in NY. Once it’s sold at auction, it’s gone. Also, as mentioned in another post, once the BK petition is filed, neither you nor the homeowner can do anything with the property without permission from the trustee.
The Bankruptcy stops or ?Stay?s? all foreclosure action? No Foreclosure? No Sale? No Demands for Payment? the debtor is safe until the Bankruptcy Trustee releases the ?Stay?. The best you could hope to do is approach the homeowner and offer some cash to release the property for sale (must be approved by the trustee).
Actually, what I meant in question #3) was having the winning bid in a foreclosure action brought by the 2nd mortgageholder. Let’s assume that the homeowner is current on the 1st and the following numbers apply:
market value of home $300k
1st mortgage holder $130K
2nd mortgage holder $ 50K
3rd position judgment $ 20K
Here’s where I get very confused!!! My goal is to pursue the equity in the example. The 2nd has brought the foreclosure to collect the $50k. If I buy out the 2nd’s position do I also have to pursue the 1st mortgage holder’s position? I assume that, if down the road the 1st filed a foreclosure action,
the example in your response would apply to me as the “new” 2nd mortgage holder and I would be faced with protecting my position.
Finally, am I to understand from your response that you have never seen a foreclosure auction brought by the 2nd lienholder?
Thanks for responding and your patience with newbie questions,