How to buy when 2nd lien is foreclosing?


#1

I was looking through some properties for auction and I noticed that one I was interested in showed it was being foreclosed by the 2nd lien holder. When the 2nd lien forecloses, are you able to assume to the 1st loan in most cases? Would you be required to pay it off when you complete the sale? Do you need to contact the 1st lien and if you do would they release any information to an unauthorized 3rd party?


#2

Once you buy a DOT at the steps, you’re responsible for covering any senior (by recording date) liens/loans, etc… I’d wait until I’ve received/recorded the deed and then contact the senior lenders. In many instances (but not always) these lenders will allow you to bring any past due $ (default) amt current and then continue making payments on that loan while you endeavor to fix and sell the property. You’re effectively taking the place of the former owner and you may even be able to keep the same terms… or (w solid credit history) possibly negotiate more favorable terms. That said, virtually all DOTs will have a “due on title transfer” clause and they may enforce a full (100%) payoff on their “senior loan” once you’ve recorded the deed (i.e. the 2nd you bought at the steps). A safe rule of thumb to follow… If you don’t have sufficient cash to payoff ALL senior debt immediately, then DO NOT buy the 2nd (3rd, 4th, etc).

In answer to the second part of your question … yes, once you’ve recorded the deed, contact the senior lien/loan holders … as you are now the property owner, and as such you are the party who has the obligation to payoff senior (recorded before the DOT you’ve acquired) obligations and any past due property taxes. The senior lenders will engage with you as it is in their interest to settle affairs on the best terms possible.


#3

Thanks for the reply Danny, I was just wondering if seniors lenders give out information on what they will do before the purchase is made; would they let you know as a potential owner if they intend to enforce the “due on title transfer” or allow the new owner to bring the delinquency current and make payments until selling the property.

From your answer it seems they will not clarify this before and you would only be able to find out for certain after you have made the purchase and recorded?


#4

There is no way to know what the lender on the 1st will do. You should always assume that the lender is going to accelerate the terms of the loan. Additionally, you need to make some consideration for the past due interest that could be outstanding on the 1st since that will be due as well.