Question regarding SS with a 2nd involved

I am working on my 3 SS attempt. The first 2 were 1st mortgages only and did not work out. This property has a 290K 1st and an 84K 2nd. FMV is 365K. The 1st is with American Mortgage, and the 2nd is with Chase. I have read that you have more leverage with a 2nd since they are in a junior position. My question is how should I go after this one?

Do I pay the 1st what is owed and focus on doing a SS with the 2nd only, and how much should I offer them? I am open to other creative ideas as well. I am working on the exit strategy as well, possible sub2, L/O, flip, etc…I have a relative who is a Realtor giving me leads, and another who is a loan processor at Country Wide giving me NOD lists in my area. This lead came from the Realtor and I will be meeting with the client by tomorrow.

Carl P

Good Evening Carl,

I’m not sure how Country Wide might view one of their loan processors releasing that type of information; don’t get me wrong, I think it’s great you have that “in”. I would just be a little careful on posting that type of information.

Here is my two cents, however you should seek the counsel of your real estate attorney, accountant, pastor and real estate agent before putting any of my advice to work. (now that’s a disclaimer that should keep me out of court…ha ha)

When the loan balances are so close to value, I have had the best luck talking with the bank when I had a “packet” from the homeowners. Remember, the bank doesn’t own the property, the property simply backs up the loans.

The packet I put together includes information directly from the homeowner noting they are not, will not and have no intention of making another payment. This generally takes the wind out of the bank thinking they could work something out with the current owners.

It also includes photo’s of the property, this of course only works if the property is not in good shape.

Finally, it includes my offer. I would send the same packet to the 1st and 2nd mortgage holder. This way they know you are attempting to work a deal that includes all the financing currently on the property.

Find a good title company that will work with you, mine will complete title searches for $75.00 a property; this will give you an idea of what else might be going on with this property. Or, you could always ask the 1st mortgage holder to supply the property free from all taxes and liens. Including a copy of your preliminary title search will at the least, show the lenders you are serious about this deal.

As far as the amount to offer, it’s not based as much on what the bank is owed, as much as it is on what you can pay for the property and make a healthy profit. I don’t know the DC area, so I wouldn’t be much help with that. But as a general rule, not always; I offer the 2nd mortgage holder 10% of the balance. If the 2nd agree’s to this and the 1st says they aren’t interested in the offer you made, the deal isn’t over. You could…sign a Quit Claim Deed or Long Term Lease-Option with the homeowner on the 1st, then place it into a Land Trust, and pay off the 2nd at the 10% they agreed too.

Another investor in California couldn’t get the 2nd to discount at all, and the 1st agreed to negotiate; so he took care of the 1st and the homeowners gave him the item they purchased with the 2nd, a Harley Davidson! He then took over the payments on that for a little while and then sold it to pay the 2nd off.

Good luck,
Ray Rochefort, mgr. mem.
Purpose Investments LLC

Thanks Ray,

I am familiar with submitting the packet for the SS, but what I am concerned with is how much leverage does the 2nd mortgage have. What if they won’t discount? I would like to get the 2nd down and flip the home, or pay it off and buy the home Sub2 for a rental. I doubt the 1st will discount since they are 75K below market. This is the problem I have had in the past, the banks think the home is gold. That is why I am focusing on the 2nd, but I will try on the 1st as well.

Good luck Carl,

Keep me updated, even if you don’t make a deal for this property; you will learn how to better approach the lender on the next one.

Go Get’em!
Ray Rochefort, mgr. mem.

Thanks for the positive words Ray, I’ll keep plugging away!

If the 1st lender is the one foreclosing, and the 2nd won’t play ball with a short sale, can’t you just buy out the first and foreclose it without paying much (if anything) to the 2nd or any other lien holders?

Good Morning Wiseguy,
If the 2nd position won’t play ball, that’s a problem. I have started foreclosure procedures when I held 2nd position. If the 2nd position won’t work with you and the amount owed them makes the deal unprofitable, I would walk away. Just my two cents.

Go Get’em!
Ray Rochefort, mgr. mem.
Purpose Investments LLC