Second mortgage foreclosing questions


#1

Hi Sean,

I am looking at a property where the second mortgage, held by a private party, is foreclosing. Originally the first mortgage holder (which was a bank) filed a notice of default but then this notice of fault was withdrawn. The property appears to have signifcant equity even considering first and second mortgages. Here are my questions:

  1. Is it likely that the second mortgage holder cured the default on the first mortgage? How would this be done? Would he/she need the consent of the homeowner?
  2. If the property is purchased at auction for more than the amount owed the second mortgage holder what will the trustee do with the extra funds? It does not seem they would go to the first mortgage holder since the first mortgage is not in default. Would the overage amount go to the homeowner?
  3. If the second mortgage holder bids more than his debt does he need to supply the full amount of his bid in cash or just the amount over his debt?
  4. The homeowner appears to be a savy businessman who has engaged in many property transactions but he refuses to consider any offer purchase his home prior to foreclosure. Any speculation as to why? Is it possible he is expecting that there will be multiple bidders at auction and he will get some equity out through that process?
  5. Is there anyway to find out how much is owed the first mortgage holder?

Thanks much


#2
  1. Certainly possible the 2nd cured the default on the 1st. You can often get an idea by the size of the default amount on the 2nd. If it is roughly equal to a likely past due amount on the 2nd plus the published default amount on the 1st it was quite possibly paid down… just don’t count on it.
  2. Yes, overage goes to the homeowner.
  3. Just the amount over his debt. Lenders are always allowed to credit bid up to the amount they are owed, when bidding on their own loan.
  4. I’ve given up trying to figure folks in this situation out. Many have some half baked scheme / plan, sometimes it works, sometimes it doesn’t. All we can do is show up at the steps for each postponement.
  5. I’ve heard of people pretending to by a title company and faxing a payoff demand. My guess is that would be illegal so I wouldn’t recommend it. After purchasing a property I’ve had good luck getting the homeowner to help with this, but doesn’t sound likely in this case.

Finally, given the situation, only buy the second at auction if you are ready able to pay of the first. The first does not have to accept payments from you.