I am holding a 9k second lien on this property I sold 2 years ago. Now they run into financial problem. And they had not paid their property tax for 2005. And they had not paid my note for 2 months.
Should I start to foreclose on them?
What should I do first?
Do I need to pay the property tax and took over the first lien?
Any advice would greatly appreciated
first, document your a$$ off. keep notes on EVERYTHING: every letter, phone call and email. if it’s not in writing, it doesn’t exist.
Your first step is a certified letter advising them that they are delinquent.
your second step is to pay an atty $250 to review the note and advise you how to proceed.
Thanks Mark, you are full of infomation.
I will do that, and now their phone is disconnected. I guess I have to track them down.
Has anyone else been in same situation? If so, what did you recommend?
Howdy IloveRE13:
The first thing to look into is if there is equity. If the taxes are $3K and repairs $5K and the late payments to the first mortgage company are $3K you may end up paying out more than the property is worth just to try to protect your note that you would not be able to be $4K if the place were on excellent condition and the borrowers were current. Plus paying an attorney $750 to $1000 to do the foreclosure. Just my 2 cents here as I did exactly the same when I bought a $9K second for $4500 and lost the $4500 which was better than losing that and more as it would have turned out.
If you wish to persue a foreclosure, follow Mark’s advise. Your attorney will confirm, but you do not have to “track them down.” All you need to do is send to the last known address. I assume that you took an application on them. If so, then if you want to track them down, start at their last known work address.
Ted as given some excellent points to consider as well. Personally, I love 2nd liens because the offer so many options. For instance, if it’s worth it to you, you can foreclose, take over the property and resell again. If you find the borrowers, make them a deal that if they can pay you in 30-60 days $4500, then you’ll consider the note paid in full. If it isn’t performing, put it out on the market for 1-2K and see if someone else wants to try to collect. Or, if you’re feeling really generous (meaning, none of the above worked out) simply write it off as “bad debt” count it off on your taxes, send your borrowers a 1099 for the $9K as debt relief and let them fight it out with the IRS.
Raj
Thanks guys, you all giving me some great advice.
Actually I used to own this home and holding the 2nd lien. The house has approx. 20k equity (including my 9K). I would hate to see my 9k going away. If I can find my borrower, should I talk them into give me the deed? And take over their payment subject to. I think that would be the best solution. They can keep their credit and I can gain equity. Do you experts see any down side with this?
There are always downsides to investing. It’s called risk. And you always must weigh the risks/rewards for every investment. So, what’s the risk and what’s the reward for this investment?
$20K equity, including your $9K leaves $11K. Do you know if they’ve kept the 1st lien up? If not, then there is probably NOT $11K left. How about repairs? Is the property still in good shape?
If you choose to foreclose, what is it going to cost vs what you’ll actually get? Is it more important to you to collect the $9K than it is to throw more money at the problem?
If they wanted to give you the deed and you take over sub2 on the 1st, if the 1st isn’t current, do you really want to pay it up to get the property back?
Did you make any money on the deal when you sold it to them? Have you made money on the deed in the time since (during the loan period)?
Raj
$20K equity, including your $9K leaves $11K. Do you know if they’ve kept the 1st lien up? If not, then there is probably NOT $11K left. How about repairs? Is the property still in good shape?
If you choose to foreclose, what is it going to cost vs what you’ll actually get? Is it more important to you to collect the $9K than it is to throw more money at the problem?
If they wanted to give you the deed and you take over sub2 on the 1st, if the 1st isn’t current, do you really want to pay it up to get the property back?
Did you make any money on the deal when you sold it to them? Have you made money on the deed in the time since (during the loan period)?
Raj
Raj,
Thank for the reply, answer you question as follow:
We hadn’t been inside the house, so I do not know condition of the house.
And I do not know if their first mortgage is current or not, I would said no.
Actually I would like it take back the house, if doesn't cost me too much .It is in a great rental area. I would keep it as rental instead.
4. Yes, I did make approx 10K (not including the sweat equity) on the deal the first time, and they need me to hold the second to qualify for the mortgage. I will never do that again. Lesson learned!
5. I did made aprox. $1200 on interest on the deed.
If you and anyone else have any more advice, it would greatly appeciated!!!
Option’s
Sell the note to a buyer.
Contact the owner see if you can short sale the first to get the property at a better price.
Call Escrow companies and see if you can get them to service the note for you.
I hold notes all the time Look at it like this if you have held the note for 2 years at 13% that is right at $100.00 per month so you have gotten $2,400.00 back on it where as if you would of held it for 30 years that is $36,000 back on a 9k investment. The Only thing I do is never service the note myself. Now if you can get it caught back up and want to sell that note Goooooooooogle Note buyers there are some out there that will buy it for $.90 cents on the dollar. ($8,100.00) That is always an option if the note was set up correct.
reoconsultants
Thanks for the reply,
you mention short sale, what is the chance the bank will go with the short sale?
Acutlly We finally talk with them, and they did pay us two month back payment, and they work a deal with the Tax office with the payment plan. And THEY SAID their first mtg is current. Should I just let it go? But I don’t trust them at this point. It might happen again, Should I just sell my note. It have 3 years ballon on it.
Your abilities as a 2nd lien holder may be impacted by the 1st mortgagee and the value and equity of the property. Depending on your note, you may be able to get awarded costs and attorney fees as well for your efforts to collect. There is also a chance that you could force the 1st mortgagee to take you out of the picture and stop causing them legal fees given the fact that your amount is so small. there are many other strategies that an attorney can discuss with you. Each scenario is different. You should seek the advice of an attorney in your area to help steer you in the right direction.
Thanks Marci for your advice, but I am don’t understand what you mean by" force the 1st mortgagee to take you out of the picture and stop causing them legal fees given the fact that your amount is so small" I would appeciated if you can claify that for me.
No problem. Hypothetically speaking - If the borrower is late on your payments (2nd mortgage) and still paid his 1st mortgage and you try to foreclose, that affects the first mortgage holder because they too will be impacted on their mortgage and will have to foreclose. Their alternative to retain their interest rate and terms of their mortgage is to pay off your mortgage to retain theirs. Since your loan is so small in the scheme of things (based on the info I have) they may just want to pay you off so you go away and do not force a foreclosure.
If the borrower also defaulted on the first mortgage, they too would end up joining in the foreclosure issue and may or ma not pay you off so they control the entire proceeding.
Every situation is different and all of the mortgage documents would have to be reviewed to determine what can be done. Please do not construe this as legal advise for your personal situation but it just explains scenarios that can take place. I would suggest seeking the aid of a local attorney.
I hope this helps.
Marci, thank you so much for the reply. That was very informative.
I sure your answer is helping more than just me.