I have been reading this and other forums for the past several months and the typical wisdom has been that once the 1st position files for foreclosure the 2nd will most likely get wiped out at auction and therefore will accept 1-2k for their position, what ever it is.
I am wondering if that is really the case. Recently I have been reading that the 1-2k amount is not realistic and the lender is looking for a much higher amount say .10-.50 cents on the dollar.
I would like to hear from those who have had real world experience with what the 2nd position has accepted. I understand that alot depends on how much equity is in the property but I just want to read about some actual accepted offers. Thanks
I am in a situation where there is NO equity with a 2nd of $110k and the trustee’s sale has already been postponed once and is set for 9-5-06. The second is with CIti and I offerred them 5k. They flat out refused and said they would rather take nothing. Makes no sense to me. I really have no idea what to do next. If the second refuses to release the lien it doesn’t really matter what the 1st is willing to take to settle. I think I’m dead in the water. If anyone has any ideas, I listening.
Yes, it is very, very possible to get deep discounts on the 2nd. I start my offers at $500. Then again, you have to factor in how hot your market is. I am in a state with one of the highest foreclosure rates in the country, and now the retail buying market has cooled drastically, so a $500 offer works in this area.
It also depends on the LTV of each loan. If you had, say, 40% LTV on the first and 60% on the second, then there is little chance that you could make the second go away with $500 - $1000. On the other hand, if you are dealing with a relatively recent purchase, with a typical 80/20 split, the second lien-holder is staring at a big fat goose egg if they go to auction. That is, unless you live in a hot market, have emotional retail bidders bid the property up past retail value at the auction.
There are other factors but my brain is too tired to think of them now. ;D
By theory I would think the negotiations would be a bit more difficult since the two lenders are the same. But you never know. Just short them as you would any other lender. Ask the 2nd for a stept discount and the 1st for a more modest one, that is if the numbers work in your favor.
I would still like to hear from those who have actual experiences with a 2nd lien holder discounting deeply. And if so how much? Thanks
Doesn’t it depend on the value of the property? I would like to know where the broker’s price opinion comes in. If the 1st mortgage is 400k and the second 100k, doesn’t the 2nds willingness to negotiate simply depend on whether it thinks the property will fetch more than 400k at auction, as guided by the BPO?
If so, where does the BPO come from, and when is it offered?
Yes, property value is definitely a factor, which is, for all intents and purposes, the BPO. However, you will not find out what the BPO value is unless someone slips up. So, all else being equal, I was just giving an example that LTV also matters when trying to make the second go away. The higher the LTV is collateralized by the second mortgage, the lesser chance you will be able to make the second go away with a measily $500 - $1000.
One important side note that some investors miss is getting good DISTRESSED comps, not retail comps. If you have access to this data (court house, legal newspaper, county recorder, etc.), it is a key element to getting a successful SS to work. Previous foreclosure sales to third parties would be a good distressed comp. Pulling numbers up in MLS without discerning whether or not they were distressed sales is not a good way to go. If I can find distressed comps, I will use this number as if it were the BPO, and hammer the lender during negotiations with the fact that this would be the right value to base the transaction.
turborocket - (and bovine, forgive me for taking over your post, which is very relevant to my circumstances) -
I’m a beginner (looking at a house in this situation with 0 equity and 2 mortgages - and would love it if you would give me advice on my post from a couple of days ago - link below)! What’s a distressed comparator? I see your one example, but don’t fully understand it, and don’t know how to find out if that is the case with the house I’m looking at. Also, are there any other examples of distressed comps? I presume the number you’re talking about is the value of any previous foreclosure sale. (in the case of the property I’m looking at, I know the mortgage servicing company for the 1st mortgage has changed at least once if that means anything).
I have no problem getting 2nds to take $1,000 even if they are in for 90k.
they cant run the risk.
The other reason they take it, which has not been mentioned here, is if the 1st forecloses and the second dont reeive excess funding from the sale, they as willthe 1st lose lending power.
for every 100k a bank forecloses on they lose 600k of lending power.
This money goes into a pool and they CAN NOT use it.
SO the deal istake the 1,000 and you still have yur lending power or be a horses ass and let it foreclose, lose their 90k and 600k lending power.
Make sense now?
Once you send in your package the mitigator will order a BPO.
You make sure that you are the contact for access to the property.
Once you get there you point out the problems with the home and show him a repair estimate, show him some comps, and tell him what your offer is and " that you really need hin to come in at these numbers so you can get the deal done and help this family.
If I may expand on these comments… The OCC (Office of Comptroller Currency, part of the US Dept of Treasury) oversees all banks. They have ratings for every bank, based on performance, solvency, equal housing lending criteria, etc., etc. They require every bank to hold back X times the amount of a bank’s total defaulted loans, in the form of CASH reserves. As Green Queen stated, this takes cash out of circulation for that bank, and they cannot lend it to other borrowers to earn interest. If a bank is performing well, the OCC requires a lower multiple of their bad loans (1 or 2x) to be kept in cash reserves. If a bank has a high default rate or other solvency issues, the OCC may require the bank to carry a huge cash reserve (4 - 6x). So, as you can see, when people say that banks don’t want foreclosures, it really is true. Loan defaults/foreclosures are actually a liability for the bank, not an asset. Not only do they take a beating on the collateral value vs. principal due, they could take a beating from the OCC in terms of how much cash reserve they have to hold back.
So, how do you use this information? The average negotiatior or loss mit rep may not know their bank’s rating with the OCC or their cash reserve multiple, but I can assure you that the top cheese knows, and will push down monthly goals, quarterly goals, etc., in terms of files that loss mit depts have to close and such. So, the next time you need a tough short-sale approved, look at your calendar to see if it is the end of the month, end of the quarter or end of the year. Like car dealerships, banks have quotas/goals to get defaulted loans off their books.