First time bidder. need some advice on second loan.


#1

Hello everybody,
One owner property. built 2007. I researched at the recorder office. Two loans and a third recording at the same day originated at the first sale date.
1st Doc no. - 2714 6/14/07 $347000 hillsbrogh corp 30yrs loan
2nd Doc no. -2715 6/14/07 56000 hillsbrough corp 15yr loan 3rd Doc no. - 2715 6/14/07 This one is the same Doc no. as 2nd. same bank. I didn't print the doc. to my best knowledge it said the second is secondary to the first(2714). it also mentioned some thing as right to default (my bad didn't print. was there last minute) Will go to county Monday morning and print. I need help understand this third recording. 4rth. 1/6/11 assignment of deed from hillsborogh to Bac. Only the first loan (2714) 5. 1/20/11 substitution of trustee to Quality loan svc. Only the first loan (2714) 6. 1/20/11 Notice o default Quality loans. Only the first loan (2714). 347,000 over due 33,000 7. 4/12/11 Notice of trustee sale. QLC. Only the first (2714) NOS 367,000. start bid 144,000 no second mentioned.
I really like this property. current mkt value is $259,000.

Please Advise.
Thanks, BJ


#2

Hi BJ,

It’s not uncommon to see the same document recorded twice (very common when the DOT “benes” are a group of investors - loan may be recorded in association with each investor’s name). Just double check to ensure it is indeed the same doc # and recording date, loan $ amt. In the case that you’ve highlighted above, the 2nd and 3rd loan (2715 6/14/07) are one in the same … just recorded twice.

Loan seniority is determined by the recording date. Earlier loans are senior. The recording date and doc # are key. When two separate docs are recorded on the same date, check the doc #.

Occasionally, when a lender makes multiple loans on the same APN, they will record a separate subordination agreement, or more commonly, include subordination verbiage in a subsequent DOT. This subordination verbiage will spell out that one loan is subordinate (junior) to the other. You need to pay attention to subordination agreements as they can occasionally change the seniority (position) of a loan versus another. Example: BoA loan makes a $100K loan in 2002 and the owner gets another loan from BoA in 2003 for $250K. Both loans are on the same APN. BoA has more exposure via the junior $250K loan and they may record a subordination agreement to place that junior loan into senior position. Occasionally (but very rarely today) two different lenders will agree to a subordination agreement. Why rarely different lenders? Because most senior lenders would be reluctant to voluntarily place themselves into a junior position. WIIFM?

When doing your research, it’s important to document:
* All DOTs
* All full reconveyances (payoff on old DOTs)
* Other judgments and liens (note the recording date to determine seniority)
* IRS Liens (super senior, but there are some possible work-arounds)
* Unpaid property taxes (super senior)
* Mechanics liens (Note that mech liens wherein the work can be determined as “necessary” to preserve the value of the property … are super senior … e.g. a roof repair to avoid water damage can be super senior … a new pool is not super senior)

Tips:
* Verify the APN on EACH doc (owners commonly own multiple properties and you want to document the APN associated with the foreclosing loan. Note that sometimes the NTS will include more than one APN … possibly a good thing, but likely more research)
* Check under ALL owner(s) names and variations of the same owner(s) name. e.g. John Good and Johnny B Good Trust. You’d be surprised how often you’ll find key info under different variations.
* Read any subordination agreement/clause
* Read easements carefully and how they apply. They can be trivial or very significant.


#3

Thanks Danny_ B You have cleared a lot of things for me. Second and third are the same doc. numbers (2715) same apn & same date. I remember second or third doc said that loan 2715 will be subordinate to the primary(2714). I wonder though why the third one mentioned the term “default” My concern is if it (third recording) is to allow the lender to go back to lien the property even though its a second loan. Can they do it? (record something to make the second a sure liability / lien). Also, if it is(2715)a true second and I am sure the first(2714) is foreclosing. Do I still have to pay the second? I would really appreciate you prompt advice since I have little time. I gotta go do diligence and bid Monday.


#4

HI BJ,

In your illustration of the loans, not only is 2715 junior to 2714 but 2715 is the lesser dollar amount (making it highly likely that the lender would want to keep the current position of the loans). And both are by the same lender. Since these loans were made on the same date, and by the same lender, it is common for the lender to include some subordination verbiage, just to make it crystal clear that the junior 2715 ($56,000) would be subordinate to the senior loan 2714 ($347,000). Why might the lender include this verbiage? If the borrower (homeowner) were to stop paying (“default”) on 2715, they would want to make it clear that anyone who acquired that loan (2715) via a trustees sale would be obligated to payoff the senior loan (2714). However, if it is loan 2714 (the senior loan) that’s in default and going to auction (and I believe that’s the case that you’re presently describing), the junior loan (2715) would be wiped out for any trustees sale buyer (acquiring the DOT at the steps).

Please understand that my “take” here is based on the scant info you’ve provided above. You need to read through the DOTs, DYODD and make sure you’ve looked at everything. Best of luck.


#5

Thank You Danny_ B for prompt answer. I have been lurking on Foreclosure Radar forums for a few days now and gathered a lot of valuable information. One last question, Who do I make the cashier checks out to? I read somewhere to make’em to myself and endorse to whoever upon winning the bid. Just wanted to make absolutely clear. Thanks again for your timely advice and thanks Foreclosure Radar for such a valuable site and forum. Thanks again, BJ.


#6

Yes … it’s best to have the checks made payable to yourself and endorsement over once you’ve won the bid. Get multiple checks so that you can piece them together to come as close as possible to the winning bid amount (e.g. $200K + $100K +100K + $50K + 25K + 10K + 10K + 5K). That way you don’t have to give the trustee too much in overage … you’ll get a refund for any overage back from trustee along with the deed. Record as soon as possible.


#7

Thanks Danny B :slight_smile:


#8

I agree, thanks Danny B. You rock as usual.


#9

First of all I would like to thank Danny B and the Foreclosure Radar for the wonderful information. It was quite a seen and very interesting situation at my first bidding attempt. Although I did not get the property i went to bid on, I learned a lot. A lady from some attorney’s office showed at the court steps and started telling all the investors/interested parties in this property that she had just filed a lis penden on this property. I asked her what seems to be the problem. She said,“this guy(owner) is foreclosing fradulently. we found bla bla bla.” and she was showing papers of some kind of filing. Which I had no idea about. “what would happen if I purchase today.” said one investor reminding her that anyhing from here on will be between foreclosing bank, the owner and you guys. She said, “well there will sure be litigation involved and we gonna try to keep this guy from moving.” That was enough to turn me, the first time newbie turn off. I thought best choice for me would be to wait since I did not have any understanding of the matter. She approached the crier, showed him the paperwork. Crier made a phone call and decided to auction. Three people qualified, one investor bid very hesitantly, other who seemed to know things, got it very, very cheap. I would still like to know the scenario and learn what to do in the similar situation. Thanks, BJ


#10

Hi BJ,

With the rise in foreclosures, so too has there been a rise in attorneys who “specialize” in bankruptcy, litigation and other foreclosure forestalling tactics. The bottom line is that these homeowner’s are not paying their mortgage. And in vast majority of cases, lenders will prevail in court. It’s unlikely that you would be named in a lawsuit, but if (IF) you are named, keep in mind that the courts give foreclosure (trustee sale) “buyers for beneficial value” substantial leeway and protection. Moreover, steps buyers frequently “demurrer” if (IF) they are sued, and the courts will commonly remove the steps buyer as a defendant and/or deny the suit/claim entirely. The demurrer strategy is the “so what” defense … challenging the legal sufficiency for the plaintiff to bring a claim. See > http://en.wikipedia.org/wiki/Demurrer

With the exception of a bankruptcy, if I ever see someone waiving “legal” papers at the steps, I will ask for the name of person distributing the flyer, + the law firm involved in the lis pendens, and snap a cell-camera photo of the flyer being distributed. I heard tell of one such “lawsuit pending” flyer being distributed at the steps … when in fact it was not a lawsuit at all and the attorney was not a member of the bar. It was either a bid-chilling tactic for unknown motives, or a Machiavellian steps buyer looking for a way to eliminate his competition.


#11

Thanks Danny B, Now I have learned another very critical piece of information/knowledge. I thought about it being a bid chilling tactic. Wasn’t sure. Being my first bidding attempt, I would still like to start with a clear cut property/possession. I was more concerned about possession delays and time spent in the court… Should I look for vacant properties? for now. Thanks for advice, BJ


#12

I agree with Danny B - these tactics would likely not stop me from bidding, though I’d probably add $10-15k to my “rehab” numbers in anticipation of possible legal costs. I’d also factor in a longer hold time as these things can take a while to resolve. If the market is rising longer hold times don’t hurt much, if the market is declining it can be catastrophic, so keep that in mind too. As such I’m not surprise the home sold for less. Expanding slightly on Danny’s recommendation I’d try to verify that a lis pendens was actually filed, or if it was just a scare tactic. If I were the successful buyer the first thing I would do is to try to convince the prior owner and, if applicable, their attorney, to take cash-4-keys and move, noting that doing so would not hurt their ability to sue the lender over whatever it is they are alleging. All that said, I probably wouldn’t recommend doing it as your first deal. A vacant property would be a much nicer way to start out.


#13

Thanks Sean, She had proof of filing and was legit. Showed the documentation to the crier. Who called the bank and proceeded with the auction. Thanks for great advice. BJ


#14

Since the person filing the action didn’t obtain a TRO (restraining order) against holding the sale, the Trustee was free to proceed.
All an action like that does is put the buyer on Notice that he/she will have a helluva time getting the person out. This is one case where kash for keys would definitely be worth while to insure the house isn’t destroyed when they finally vacate.
There are some cases, where the lender thinks they may be vulnerable, they will instruct the Trustee NOT to issue the Deed and return the bidder’s money. Many times it happens because a bk. was filed prior to the sale, other times one branch of the lender had made a workout agreement, while another branch foreclosed. We had 2 sales in the past 15 days where we didn’t get the Deeds and just got money back.