Anyone buying junior lien NOTES and shorting the 1st??

Hi all. Is there anyone here successfully buying notes from junior lienholders? Instead of doing a short sale on the 2nd, you actually buy the note? I’ve heard this strategy more and more lately, and I’m dying to get more info about it. It sounds like a great strategy, but don’t they all at first? :stuck_out_tongue:

Can anyone shed any more light on this one??


If you buy the note for the second prior to having an arrangement to discount the first then all you are doing is putting yourself in the second lien holders position. This means if the first forecloses you are pretty much ‘SOL’. Personally I would not take that chance.

If on the other hand you have already negotiated a short sale with the first low enough to make a profit after buying the second, then… I still wouldn’t do it. No matter what the primary discounts to, it will not be enough.

Lets say the second sold you their note for 20% of the balance owed. OR you did a short sale and got a discount approved for 20% of the owed amount. Either way you arrive at the same place. You just need to decide which vehicle is best suited to get you there.

Good Luck! :beer

For Forclosure Negotiator:

If the second accepts the payoff allowed by the first then taking the paper on the second wouldn’t make any sense.

However, I have heard of cases where the second wasn’t willing to accept the payoff from the first and in this case the investor bought the paper for the difference.

What’s your take on this?

Why would you ever do this?

Please don’t. Sounds like a newbGuru who couldn’t hack it investing and creating a crazy program that will screw you.

Ok. Let me back this up. Anyone who’s ever done short sales knows that a lot of them don’t get approved. How many 2nds can you afford to buy and lose to foreclosure before you’re out of money? Also, if the equity lies with buying the second, why not just SHORT THE SECOND??? they will lose their lien if it forecloses anyway so give them walk away money at closing.

I am shaking my head at why you would buy the 2nd to negotiate with the 1st. Now, if you are in 2nd and bring the 1st current with equity and foreclose subject to the 1st that’s a different story, and you’ll need a lawyer - not for beginners.


There are probably some times when it would be a good idea.

The second isn’t wiped out unless there is a foreclosure, so maybe if you are buying subject to, you could reduce the debt by buying the second at a reduced rate.

But liens can be more than mortgages. Are you maybe thinking about buying mechanics liens, tax liens, judgements?

Is it possible to buy a second and foreclose and force the first mortgage holder to sell their mortgage to you? Like maybe when the original first is well paid down? or maybe if you are foreclosing by using the second, the first mortgage holder would short sale to you so they don;t get sucked into the foreclosure?

It is possible for the second to be the larger of the loans, especially when it is an older home with a long time owner.

I don’t think it is possible to for the first mortgage holder to force the second off the property in any way except foreclosure. Even then, the second isn’t actually beinging forced off the property. What is happening is that the first gets paid first and the second gets what is left over, which is usually nothing.

So unless there is a foreclosure, you need to work something out with the second because without a foreclosure, they don’t just disappear.

Is it possible that the first mortgage holder is more inclined to allow the holder of the secind to buy them out if they are having problems collecting and are thinking maybe a foreclosure is coming? More receptive to the second holder than to the general public?

Obviously, you wouldn’t buy the second unless you had an approval for the first. I guess I need to spell everything out over here. :S I know the laws, and know the second will lose if the redemption expires. Some just don’t care. If there is enough of a spread, and I have a buyer lined up, I’m going to do whatever I can to make the deal work. This is just one more strategy that can be put to use.

This strategy would only be used if the 1st lender requires the second to only accept X, typically $1000. The 2nd won’t budge on the 1K, but will sell me the note for $5K or something along those lines. I can buy the note, and release the lien, get “repaid” 1K on the HUD to do that, and then finish the transaction off.

I would never buy the 2nd note if I didn’t already have a deal struck with the 1st. I forgot how many beginners post here, so I apologize for not spelling it out properly.

I am only speaking about when the 2nd lender won’t come down to a mandated $1K, which I’ve seen more and more, where I have already worked out a deal with the 1st. Some lenders, for God knows WHAT reasons, still won’t deal even though they will be wiped out once the sale happens (actually in Michigan, once the redemption expires). It is esentially the same as doing a short sale, only you buy the note for a bit more than the 1st will allow to release, and then you release the lien as the lienholder. I’ve never actually done it, but I’m hearing about it more and more. With some of these idiotic lenders ahemFranklinCreditahem I’m needing to find an alternative strategy.

I realize not every short sale lead closes, but if I’ve got a good spread from shorting the 1st, and can afford to throw out $5K or so to the 2nd, its a worthy option to get the deal done.

I read about something like this. What I got out of it was, if there is a large second and facing being wiped out by the 1st it might make sense to buy the 2nd at a big discount then bring the 1st current. In other words you get the deed on the pre-foreclosure buy the 2nd while there is pressure on it then bring the 1st current. So you skip the short sale process all together your just discounting the 2nd. You would own it for just over the first so the second would have to be pretty big. Again have not done this just read it.

Ok that makes more sense. Thanks for clarifying. If you can make it work, go for it!