What are the pitfalls of buying a 2nd mtg. at auction?


#1

There is a property that is currently scheduled for auction which has equity, even after adding the 1st and 2nd mortgage amounts together. The 2nd Trust Deed is foreclosing, and there is not currently a notice of default filed on the 1st.

If I purchase the 2nd Trust Deed, is the 1st lienholder required to accept a payoff of the loan amount?

Also, can I legally evict the current homeowner after purchasing the 2nd mortgage?

Assuming both of the above are true, can I make up any defeciencies to the holder of the 1st mortgage and continue to pay the mortgage instead of paying it off in one lump sum?

Any information would be helpful.

Thanks.


#2
  1. Yes the 1st is legally required to accept a payoff.
  2. Yes, you can evict the owner after purchasing a 2nd.
  3. You may be able to make payments on the 1st. Most loans have a due on sale clause, and a trustee sale does trigger that clause, meaning that the 1st lender can demand payment in full. In the past I usually try to work with the past owner. If they give me their coupon book and reset their account password such that I have access I have been quite successful in continuing to pay rather than paying it off. It is great for the homeowner too as it brings a major loan current offsetting some of the damage on the 2nd. You just can’t count on this and need to be prepared to pay the 1st (though you have some time as they’d have to foreclose to enforce the due on sale clause). Finally there have been 1st’s that have gladly accepted my payments and have agreed NOT to evoke the due on sale, so if the borrower doesn’t cooperate, you might as well ask the lender.