If the second mortgage forecloses...

[Ineedhelp2]

Do they need to send everything to a sale, or can they just pay the first mortgage off and take possession of the house?

What if they want to own the house? What do they do?

[justbroke]

Do they need to send everything to a sale, or can they just pay the first mortgage off and take possession of the house?

This depends on the underlying State non-bankruptcy laws. Even if you have the ability for non-judicial foreclosures (not through the Court) in your State, usually, the lender needs to hold a sale at a predetermined "usual" location (usually courthouse "steps"), to sell the place. If there are no bidders, then the lender may "buy" the home. If it's a subordinate (junior) lienholder, they'd have to pay the senior lienholder(s) from the proceeds, before realizing any profit.

What if they want to own the house? What do they do?

They usually don't want to own the home, unless you received special financing (like hard money). Even so, they want to get their money and run, usually. REO (real-estate owned) is the designation for bank owned homes. These are usually sold at greatly reduced costs so that the bank can get them off their books quickly.

[Ineedhelp2]

I'm in a situation where the second is foreclosing.

They have discussed the possibility of doing a deed in lieu of foreclosure, with possibly some kind of lease back and option to buy plan, but I haven't heard back from them.

Anyway, the sale date they set is for December 11th.

But what is becoming more and more apparent as I do research on the local market, is that there will be little or nothing left for them. I owe the first $180k and the second $75k, and I think there is a possibility this house would barely sell for $200k if put on the market for a reasonable time, and before real estate commissions were deducted, and I have a feeling that the bids at a sale would be less than $200k, though I don't know how those sales usually work out, relative to the going prices.

I think the second thought there was more in this house than there was.

We would like to stay, but don't have the funds to pay them a large lump sum, and are not inclined to make another deal with them that would keep us upsidedown for years.

Would it make any sense to offer them something such as that we would accept a new loan for $20 or $30k?

I don't think they'd like that, but I think they'll do worse if they let it go to a sale, or if they want to take ownership and then try to sell it later.

[justbroke]

Would it make any sense to offer them something such as that we would accept a new loan for $20 or $30k?

Every lender is different. It's all risk based and how much risk they want! You can always make an offer.

You're in a tough position.

[Ineedhelp2]

I don't think the 2nd is in that great of a position either. This is private money--two businessmen who pooled their money for this loan at 14%. There was little risk at the time for them, or so we thought, and nobody expected the value to plummet by almost $100k.

They might be able to take our house or force a sale, but they won't get their principle back or all their added on fees and interest.

[justbroke]

I don't think the 2nd is in that great of a position either. This is private money--two businessmen who pooled their money for this loan at 14%. There was little risk at the time for them, or so we thought, and nobody expected the value to plummet by almost $100k.

Like I wrote above, if it's hard money, then it is possible that they'll foreclose, take out a new loan, and pay off the senior liens! They'll then use it as an investment property!

They might be able to take our house or force a sale, but they won't get their principle back or all their added on fees and interest.

Since these are actually investors, they know (or understand at the least) what risk is. They are basing their decision on potential realization of profits.

I'm thinking that since it's hard money and they are just two private investors... they will foreclose and then determine what they want to do with the property (either sit on it while renting it out or selling it at a loss). It's their decision.

If I were a hard-money lender... I wouldn't lend money (or refinance a loan) to someone who just BK'd me. The chances of you negotiating a new note with them, is low. The chances of them offering you to live there and pay rent, is higher. Whether they'll do some sort of Lease/Option with you... is another story.

[Lajazz947]

Every lender is different. It's all risk based and how much risk they want! You can always make an offer.

You're in a tough position.

I agree that every lender is different.

How have the negotiations gone so far?

Most banks/private lenders do not want your house.

Perhaps you can contact them and offer to run an appraisal so that they can see for themselves that there is not enough money for them to make it worthwhile to foreclose?

Maybe if they see the numbers they will be inclined to work with you.

Also you mention that they have discussed options. That tells me that they are indeed open to a solution.

Call them daily if need be to see where they are at.

If you are really able and willing to walk then you can play hardball. In this market I think that you have a shot but you have to be proactive.

[Ineedhelp2]

If they want an investment property, there are better deals than this house. They'd be further ahead if they cut my loan in half, and instead of sinking $200k more in this house, doing another deal.

It will really bother me they know by forcing us out they'll do worse than by making a deal with us.

What they don't know yet is that this house is nowhere near ready for a renter. A lot of stuff went to pot. One bathroom is very damaged and the entire floor and bathtub need to be replaced. We desperately need an entire new roof. The carpets should be replaced. The windows are old and have failed and need to be replaced. I did a rough estimate of all the things I would want done if I were a new renter, and it was around $25 to $30k.

I also estimate that rent will barely cover the cost of the new money they would put in this, and the could go many years before they recover their initial investment, and without getting any return on it.

[justbroke]

Absolutely, and those are the decisions a true investor needs to weigh. Many investors don't look for short term gains. However, hard money lenders are usually looking for short term gains. So, I don't know what you and the lender needs to do, but you probably don't want the place either, since it needs $30K in repairs, and you are already upside down on it.

[Ineedhelp2]

If they cut their loan in half, they'll get more than they would have and we'll still be upsidedown, but not by much, and we can make that sacrifice to stay, and fix things up as we can. I just cannot see renewing a $75k second mortage at high interest if that puts us $45k to $50k in the hole.

We want to stay. This has been our home for 20 years and we don't want to leave yet.