I have been watching the REO market here in Illinois for a while now.
I found a house in a good area, well below market price, I want to move foward but one thing is holding me back.
There is a 2nd mortgage on the house which if the clerks office is right the amount is more that the 1st mortgage. The listing does not include this price.
When you buy an reo are you responsible for the other liens on the house??? If so why does the reo bank not include this on the price?
If not how do you get them off.
Any help here would be great.
Thanks
Antoinette
If it’s an REO, bank owner property, it has no 2nd mortgage on it. REO basicily means the foreclosing lender legally took the property from the mortgagee. If you buy it from them you will inherit the property free and clear of all previous mortgages. What county of IL are you in?
I am in Dupage county. Thanks for the reply. I was thinking that they could not resell a house unless it was free and clear. What happened to the 2nd mortgage then,that bank just loses?
That almost doesn’t seem fair.
Thanks Again.
As mentioned the 2nd will get foreclosed out if the first mortgage holder completes their foreclosure, even if the 2nd was greater in value. It is up to the 2nd to protect their position and possibly bid on the property at the foreclosure sale, but it seems they did not do this. The seller (bank) must disclose all liens against the property. Perhaps the 2nd you found at the clerk’s office is simply the original recording of that 2nd position and as stated it is now gone. Ask the seller about this and for documentation there are no liens on the property.
Thank you I will do that tomorrow. Like I said I never purchased an reo before and I don’t want to get burned thinking I am getting a good deal and end up with someone elses problems instead.
Thanks again
Antoinette
As posted, the 2nd will lose completely at auction if nobody bids. I regularly attend auctions here in cook county and 99% of the time nobody bids on the property, so the foreclosing lender takes it back. Even if there is a 1st and 2nd, 99% of the time nobody bids on enough to even cover the 1st, thus the bank takes it back… Lesson for the furture ONLY offer the 2nd 1K for their position, because they will most likely get zero dollars come aucton.
I agree but an interesting situation where the 2nd has more money exposed on the property than the first. What do you do watch the money disappear or double down and buy out the first and take the property?
If the 2nd is more than the first, then typically at the sheriff sale/foreclosure auction it would be a great deal.
Example:
Home worth $100k, only owes $40k on first. They decide to take out a $60k HELOC for whatever reason and blow all the money, now they owe $60k on the second. That would mean at the auction the price would most likely start at $40k(give or take) and it would be a good deal.
My understanding is that the 1st position gets paid first no matter that the second is owed more and/or is foreclosing. I assume that in this type of situation the 2nd is hoping that someone will bid close to their amount. I have seen at these auctions where a second was higher than the first and they were foreclosing, the 2nd would start the bidding lower than the owed amount in the hopes of getting some type of payoff. Here’s an example of what I mean.
1st 50k
2nd 75k
2nd is foreclosing and at auction starts the sale at 60k.
If it is picked up at that amount the 1st gets paid and 2nd will get other proceeds.
What the other posters have neglected to mention is the Redemption Period. Here in Colorado, the homeowner has 75 days to redeem after the foreclosure sale, no matter if the bank takes the property back or if someone bids above the loan amount. The owner must pay the high bidder amount plus all fees and expenses of the foreclosure process and sale. During this redemption time, the bank does not yet own the house (REO), the homeowner still owns the house and if they are able to redeem in time, including paying all junior liens, they will own the house free and clear, or if they took out a new loan they will have a new mortgage. If the homeowner does not redeem in time, the junior liens begin a shorter redemption time from that date to redeem their interest, 15 days here, in which the second lien must pay the first mortgage off to own the house. If the second fails to redeem, then the third, fourth, etc. have a few days to pay off the first and whoever is ahead of them to own the house. If no one redeems, then the bank owns the house as a REO and can sell it for whatever they can get. All junior liens are wiped out at that time. The bank cannot sell the house before the redemption deadlines because they do not own it until then. They can, however, market the house and negotiate a pay off for a potential buyer contingent upon no one redeeming the property. That buyer will close after the redemption deadline and, therefore, will not have to pay the second or other liens, those liens will be wiped out. The homeowner can also sell the house before the redemption deadline if they can find a buyer who will pay all of the fees, costs, first mortgage and all junior liens.
I have a similar situation (except different). A home in northern Utah is being forclosed on. First MTG is $171,000 and the Second is $85,000. The MTG being forclosed on is the second for 85. According to a previous scenario, bidding would possibly start @ $200,000???
I started attending Illinois foreclosure auctions last summer. One of the first properties I wanted to bid on had 1st & 2nd liens and BOTH had foreclosure dates. The auction for the 2nd lien was 30 days BEFORE the auction date for the 1st lien. I consulted a real estate attorney as to why the 2nd lien bothered to file foreclosure and whether it would be advantageous to bid on the 2nd lien. I was told that if I were the successful bidder on the 2nd lien at the auction, that it would NOT erase the 1st lien auction 30 days later. Therefore, I would have 2 options if I wanted to keep the property.
- refi to pay off the 1st lien before it also went to auction
- attend the 1st lien auction and be the successful bidder
If I did not successfully do one of these two things, then I would lose the property to either the 1st lien lender (REO) or another third party bidder. I decided not to bid. The point here is that when a bank takes back a property at a foreclosure auction (in Illinois) only junior liens are wiped out, senior liens (and unpaid taxes) stay in place.
GPRE or anyone else — Thanks for the info. Thats great to know. Also Do you happened to have a good Mortgage person here in Illinois. I have been searching for one that understands Investor Financing there are plently of them I just would feel better about it if
I knew someone else had used them. THanks ANtoinette