Posted by Bob Smith on June 01, 2006 at 18:21:19:
>However, there is another possibility: that is that the bid only
>goes up enough to cover the foreclosing first, then he gets nothing.
How did that happen, when he showed up to bid at the auction for the first? Since he owns the second, he can bid high enough to cover it. It’s like playing with the house’s money.
Thinking of Buying a 2nd… - Posted by IB (NJ)
Posted by IB (NJ) on May 30, 2006 at 20:36:53:
It’s the 2nd on a house that’s abandoned. The owner lives somewhere in Michigan. The ltv on the defaulted 1st is something like 20% (checked the comps). It looks like the owner brought the place back in 1998 before RE values here took off. I’ve been trying to reach him to sell but haven’t heard from him. So I decided to go after a small $8k second and make SOME money off the deal. The lender (also in MI) says they’ll take $2-3k on the note which never received a single payment. My thoughts is to buy it, let it go to sheriff sale (in 2 weeks) and apply for the overage. Good plan?
I’m really trying it as an introduction to the note biz. I specialize in buying abandoned properties but want to start exercising more options for those absentee owners who don’t take my offer or who decide they want nothing AT ALL to do with the property (incl. sign my contract so I can buy).
I’m going to do my own lien search on this one but will hire a judgment search company to handle the upper court search (don’t want to miss any state or irs liens).
Your thoughts?
Re: Thinking of Buying a 2nd… - Posted by Rich[FL]
Posted by Rich[FL] on May 31, 2006 at 11:54:12:
Why don’t you buy the 2nd and foreclose? If the 1st is so low, you could bring it current and end up having a pretty good deal! Maybe you could buy the 1st also! Just a thought…
Rich
Re: Thinking of Buying a 2nd… - Posted by IB (NJ)
Posted by IB (NJ) on May 31, 2006 at 17:12:03:
Hi Rich. How have you been?
Question: I’m not sure what buying the 1st (or reinstating it) would accomplish. The property will definitely be picked up at sale from a bidder and the most I could probably collect on my 2nd would be $8k + late fees. Unless of course the 1st is willing to discount significantly. Which I doubt since they are right here at the sheriff sale.
Re: Thinking of Buying a 2nd… - Posted by Rich[FL]
Posted by Rich[FL] on May 31, 2006 at 17:30:41:
I’m doing fine! I purchased the MH home I was working on right after I returned from the convention and have been working to get it rentable ever since. Just yesterday, I signed a lease with some great kids who will be moving in tomorrow. Now I’m on the prowl for more MHs! (I’m also on the prowl for MH insurance that doesn’t cost an arm and a leg! I’m now “uncovered” on two of them.)
I guess I didn’t see the part about it going to sale in 2 weeks. Otherwise I wouldn’t have mentioned anything about trying to buy the first; in any event, it wouldn’t hurt to ask. They may be willing just so they won’t have to shell out any money themselves for fix-up costs before selling (some banks don’t even try).
That said…if you only buy the 2nd and wait for the sale, you’re not investing; you’re “speculating”, hoping someone will bid more than what the bank is owed which will, of course, go to you. You’re not in control of the deal at that point; it’s more like you’re shooting craps in Vegas. On the other hand, you may have insight into the investing climate in this area; are there a lot of people bidding on foreclosed properties? Are prices regularly bid up above the bank’s payoff? If so, this might work. But again, you’re at the mercy of someone else.
If the LTV of the 1st is really as low as you state, purchasing the 2nd and bringing the 1st current should put you into a pretty good ownership position with great equity built in. From that point, you can control the deal, making payments to the 1st while you do any required fix up work. At that point, you could rent it or sell it for full price to an owner-occupant, or another investor. Alternatively, you could wholesale the deal to another investor and pick up some quick cash.
One way, you (and your money) is at the mercy of someone else; the other way allows you to retain control.
Hope this helps clarify things a little more for you.
Rich
Re: Thinking of Buying a 2nd… - Posted by Bob Smith
Posted by Bob Smith on May 31, 2006 at 23:22:14:
>hoping someone will bid more than what the bank is owed
>which will, of course, go to you.
Why can’t he buy the 2nd, and then bid at the foreclosure of the first to guarantee an overbid?
Re: Thinking of Buying a 2nd… - Posted by IB (NJ)
Posted by IB (NJ) on May 31, 2006 at 21:17:53:
But wouldn’t purchasing the 2nd only make me the owner of the 2nd and not the property? I would then have to foreclose on my lien and hope that no one at the sheriff sale bids higher than me…which aint gonna happen. I’ve been investing in Newark for 6 years now where the property is located. I also attend the sheriff sales weekly in that county. The bidding is pretty fierce. Fierece enough for me to virtually guarantee that this property will get bidded over $100k. So the overage is almost certain providing there’s no senior lien prohibiting me as a 2nd mtg. holder from getting paid. I searched the liens but I need to do an upper court and tax search to make sure.
Ib
Re: Thinking of Buying a 2nd… - Posted by Rich[FL]
Posted by Rich[FL] on June 01, 2006 at 12:47:09:
I suppose that is a possiblity. However, there is another possibility: that is that the bid only goes up enough to cover the foreclosing first, then he gets nothing. It sounds like that may be unlikely in his case, but it is a possibility. That’s why I was suggesting a route that would allow him to control the situation where he wouldn’t lose.
Rich
Re: Thinking of Buying a 2nd… - Posted by Rich[FL]
Posted by Rich[FL] on June 01, 2006 at 12:44:05:
Yes, purchasing the 2nd would only allow you to own the 2nd. You’d have to foreclose - but then you’d be in control. It appears that, at worse, you would end up in exactly the same spot as you would be originally. If the investor overbids you, you’d make about the same amount of money as before. Or maybe you could contact the previous owner and do a deed-in-lieu of foreclosure which would keep the other investors away (no foreclosure sale).
You appear to know your foreclosure market pretty well so what you had proposed to do may very well work for you. What I was suggesting was another way to gain access to much of the equity you mentioned was avaiable, and the only way to do that is to gain ownership so you can be in the driver’s seat.
Owning the 2nd and bringing the first current would stop the foreclosure which would give you time to locate the owner and get a deed-in-lieu. If that doesnt work, you can foreclose your interest which means the investors who show up for the auction must bid more than what you’re asking if they want to property; however, at this stage they would own it subject to the existing 1st. Maybe they will do that, maybe not.
In any case, you won’t be in any worse case than you would be in if you proceed as you had originally proposed. But you would end up with an opportunity for more of the equity you mention that exists. It may be more work, but for that more work you’d make more. There is no right or wrong answer here.
Rich