I have an opportunity to make a short sale offer to a 2nd mortgage lender. The homeowner and I have both spoken with the lender and they said they would entertain the idea of a short sale.
Is it possible to do a short sale on the 2nd mortgage, catch up the first and buy the property subject to the first mortgage financing?
The seller it totally okay with the idea but I’m not sure how this could work logistically?
From my understanding this is entirely doable. In fact I am working on two properties with this strategy in mind. Both will be going into foreclosure within the next 30 days. Both have nice fat second mortgages that would be wiped out if they went to auction due to market conditions. My goal is to present my short sale proposal to the 2nd offering them 1-2k. Once the 2nd has accepted I would then contact the 1st and workout a forbearance agreement for the arrears and then begin making payments. Mind you, I have never done this but it’s my understanding that thats how it works.
Since you are new to this I advise you to find a real estate attorney who knows how to do creative, sub2 contracts, L/O agreements, etc, REI deals. Yeah its gonna cost a little chunk of change but the piece of mind and knowledge you gain will be well worth the cost.
I hope others will chime in.
Often your biggest profit will come from HUGE discounts on the second. In fact usually the first won’t discount unless they know the second only got $1000 or so. The reason is lein priority - why should the first discount at all if the second is receiving money? Second mortgage holders are usually highly motivated to discount, because they’re about to get whacked hard - as in complete loss - when the first forecloses. If they can eek out a thousand bux or so, it’s better thsn the complete loss they otherwise face. Sometimes, you won’t be able to discount the first at all, but it’s still a great deal because you can reduce the $40,000 second down to $2,000 - instant $38,000 in free equity. Then just catch up the payments on the first, fix, if required, and sell.