Bought a second, now what?

Intentionally purchased a second TD knowing that there would still be equity after paying off first. Questions are:
Property is owner occupied- how do I get possession?
Does 1st TD have to be paid off before eviction? Does 1st lender have to accept my payment?
Can 1st TD remain on title and be paid off on flip?
Also-1st and 2nd are held by same lender, any implications?

  1. No difference in how you go after possession than if you had bought a first. Try cash for keys, and if that doesn’t work proceed with eviction.
  2. No implications that they were held by same lender
  3. The first does not have to be paid before eviction, in fact you have no obligation to pay the first at all – though if you don’t they can foreclose. Lots of options on what to do here:a. Simply pay off the first and be done with it.b. Work with the owner to get the payment details, and bring the first current and make payments. Presented properly to the owner they are often willing to do this as it does help their credit by showing some positive loan history on the loan. This is great for you as it minimizes late charges and foreclosure fees, while minimizing cash out of pocket compared to option a above. This is usually my first choice.c. Don’t bother making payments and simply work to complete the flip before the first forecloses. Higher fees and late charges than options a or b, but can still be “cheap” deal financing vs. hard money if you need it.d. Let the first foreclose! Folks at the auction will typically pay more for a first than a second, so you can often make a quick buck doing absolutely nothing (no eviction, no repairs, no nothing). The reason for this is that the owner (now you) is entitled to any overages from the trustee sale. Now note that this is overages above the ENTIRE amount due on the first, no above the drop bid. Still if there was enough equity that it was worthwhile for you to buy the second, it’s quite possible someone will pay the amount due on the first plus more than you paid for the second. You’d receive everything over and above what was due the first mortgage possibly providing a nice easy return. If you go this route be sure to attend the sale on the first with enough money to bid it up to at least the amount of the first, plus what you have out of pocket… from there keep bidding up until you have the profit you want, or own the house with the first now paid.You need to be super careful buying seconds, but I find them to be one of the most interesting opportunities at the steps.

not understanding why one might let the 1st forclose. if i have the 2nd and the 1st is bought by 3rd party, that bid goes to bank of 1st- buyer then takes posession of property, then am I not left at that point with nothing?

if u did let the 1st go to auction and say the bal was 100k, what if it sold for 95K with no extra $, then I’d loose all my equity right ?

You’d only be entitled to the amount in excess of what was owed for the first. So if you plan to let the 1st foreclose, it is really important to be their to bid the first up enough to cover the amount of the first, plus whatever return you want on the 2nd. If it goes above that then you can stop bidding and simply collect your check from the trustee after they finish processing the sale (likely a few weeks).

does letting the first foreclose affect your credit?

No, you have not assumed the loan, and therefore my understanding is that you have no personal liability for it whatsoever. Not paying it, however, puts your secured interest in the property at risk, which is why it is important to have a strategy as outlined above. Do keep in mind I’m not an attorney, and I always recommend you speak to counsel about your specific situation.

Suppose I purchase a 2nd and allow the 1st to foreclose in hopes of getting the overage. How can I determine with certainy what the ENTIRE amount due on the 1st is? I assume it is not the posted bid.

Great point, and I’ve seen people get stuck on this. Especially bad in years past were prepayment penalties that lenders would apply in these situations. Ideally you’d verify the exact amount with the lender on the first. Hard to do these days without a social security number. or cooperation from the owner. If the first was recently scheduled for trustee sale, the published bid in the notice of trustee sale is supposed to equal the total amount due as of the first date of sale. I’ve generally had good luck relying on this, but it is certainly not a guarantee.

If I buy a 2nd for more than is owed on the 2nd, does the excess go to the lender of the 1st?

Nope. The 1st still has their secured interest, they are not entitled to excess on the 2nd.

I guess I should have asked… what happens to any excess?

It would go to any lien holder or judgement claims junior to the 2nd, and then, if anything is left, to the homeowner.

Would that be the homeowner before the foreclosure?

Hi Sean - Thanks so much for your help. Can you tell me about the risk of abstract judgements and California State liens if I buy a 2nd? Also - can you tell me a good resource to research these types of issues?

Is there any way to find out what the payoff of the senior loan is?

The lender typically won’t provide it without a social security number. I have had some luck faxing a payoff demand to the lenders payoff department (use to find the fax number), but it is definitely hit or miss. Best bet is to try to get it from the homeowner. Try explaining that if you buy the property at auction you would be willing to make payments on the first mortgage while you are working to resell and that will help to improve their credit.