The Second is Foreclosing, but they won't get a dime...

[Ineedhelp2]

Our second mortgage holder is foreclosing--the sale date is less than two weeks away.

After doing some more thorough research into local values, and taking into consideration the work that needs to be done, there is barely enough value in this house to cover the first mortgage.

I think after all the costs they would be further in the hole then by just walking away, and I think it would be extremely foolish to take this house as some kind of project with the hopes of getting their money later, as there are many bargains on the market better than our house.

Since there is still time before the sale date, I'm still hoping for some kind of resolution that would keep us in the house.

But how do you negotiate with a second when they have zero backing them up, and what do you offer them? Or should we offer them anything at all?

What if they were to see that forclosing would be a losing proposition? If they don't foreclose, they still have the lien, don't they? Couldn't they just bide their time and hope we work something out with the first (yes we're in troube with them too, but that's a different story), let us keep making payments on the first, hoping the market will get better or that we make improvements, and then foreclose later when the value is greater?

What would be the cost of foreclosing and then taking possession? Any idea of the fees involved?

Note that we cannot strip the 2nd, since we previously filed chapter 13, and according to our attorney, the values would revert to the time of filing the chapter 13.

The second involves private money. They are not a bank.

The plan was to repay them by refinancing at a reasonable rate--we were paying 14% to them. But by the time the loan was due a couple months ago, the value dropped too far to be able to refinance any amount.

We're planning to leave, but still holding out some hope that we could resolve this. If the second has lost their investment anyway, then why shouldn't they let us off the hook? Why do they have to boot us out of our home to get nothing? They could get nothing by walking away, and with their resources could pick up some good bargains and recover in other ways.

Does anyone know how long after the sale date (in Oregon) we would have to be out of the house?

[HHM]

When you say private money, are you talking about an owner carry; an actual, private individual, or some sort of small investment group, or what not?

If the 2nd forecloses and the 1st isn't paid off, the foreclosure is probably moot. The 2nd mortgage has nothing to sell to someone except their note. In fact, I bet they cannot even kick you out of the house.

[StartingOver08]

HHM, correct me if I am wrong, but if the second is a private party (like the previous owner holding a note) than can't the 2nd buy out the first mortgage and end up with the collateral? Of course, this can't happen if the OP is current with their payments, but I thought the 2nd could protect themselves in the foreclosure this way. Your comments please.

[HHM]

HHM, correct me if I am wrong, but if the second is a private party (like the previous owner holding a note) than can't the 2nd buy out the first mortgage and end up with the collateral? Of course, this can't happen if the OP is current with their payments, but I thought the 2nd could protect themselves in the foreclosure this way. Your comments please.

That is the big what if in this context. But correct, if the 2nd lien holder is willing to buy out the first, then they can get to the collateral. But the 2nd lien holder actually has to come out of pocket for that at the foreclosure. Realize, almost no one actually bids on properties at foreclosure auctions. So, the 2nd lien holder has 2 options, (1) contact the first mortgage holder and offer to buy the mortgage note (this would probably be tough for a individual to do given how hidden and bundled are mortgage notes), (2) show up to the foreclosure sale with a cashiers check in amount sufficient to pay the first mortgage lender.

Note, the peculiarities of state law may play a factor, the OP would want to consult with a real estate attorney to get a good idea where the OP stands.

[Ineedhelp2]

I believe the intent of the second was to pay off the first, take ownership, and sell it at their liesure for the best price.

At the time they began the foreclosure process, I believe that they thought there was more value in this house than there really is, based on what my attorney said their attorney said, and based on a conversation I had with one of the partners in the first.

Plus, they knew that the first could foreclose too, so they were anxious to beat them to it, knowing that the first could sell for just enough to pay themselves off.

In casual calling around you could get the idea this house migh be worth a little more, but when actually doing real comparisons and research it turns out there is no value here over and above the cost to pay off the first.

Here are some of the numbers, changed a little to make it easier.

The payoff for the first is $180,000.

The second wants $70,000. It was a balloon payment due this fall, and we could not refinance it. They talked about refinancing it, and also floated the idea of a died in lieu and a lease back, but that was many weeks ago, and they have not followed up on any of that and the sale is scheduled to be held in 10 days.

A local realtor did a thorough and careful CMA and she came up with a value of $190,000 to $200,000. My own research based on actual sale prices came up with $180,000 to $190,000.

If we figure that $190,000 is fair, and in my opinion, it would take some time on the market to sell for that--it would not be a quick sale--after deduction commission, there would be about $179,000 left.

That's about what the first costs to be paid off, plus I would assume there are costs involved in the foreclosure process, and they would have the cost of the money while waiting for a buyer.

What if the second really did not see the low value when they started this, and can now be shown they would be putting up a lot of money to get nothing back, or possibly go further into the hole?

I realize we're down to the wire and we'll probably have to go, but I want to exhaust every possibility before that happens.

So my quesitons remain:

If the second changes their mind and if they do not foreclose, then what? What if they don't remove the lein?

Would it make sense to offer them something? Anything we offer would put is in a negative equity situation, as we are just barely, if at all, above the first in equity.

We want to stay, but would it make sense to offer them $20,000 (financed--we can't pay a lump sum), and put ourselves in the red in this house, while also having to come up with repair costs (probably another $15k over the next three years), when if we leave, we would have a lower cost in a better house paying rent, and could buy another nicer house for less money in two or three years? (We do have a nice and unique several acres that we won't find anywhere else, so that's why we're willing to sacrifice to stay. We like the surroundings very much).

Or if we can convince them they would get nothing or worse if they buy this house, would it be unreasonable to ask them to forgive the loan and forget about it? Again, they have nothing either way. Why not have nothing and let us keep our house?

Lastly, and I've done all kinds of searches and have gotten a lot of conflicting answers, so I'm still confused about this, if they go ahead with the sale, and I think it is non Judicial, how long can we stay, assuming they will not voluntarily give us any extra time, and is there any way we could lenthen that time by an appeal to the court?

[justbroke]

I believe the intent of the second was to pay off the first, take ownership, and sell it at their liesure for the best price.

HHM describes the process very well. The 2nd would foreclose and there would be some sort of sale. At the sale, bidders bid on the property. Many times, a second won't even bid at the foreclosure sale... because they don't want to take ownership of the collateral! They want some other bank or individual to buy it and then to reap the proceeds if the sale amount exceed the 1st.

I don't know of many 2nd lienholders who want to actually hold the property (REO status). If they did, then they would need to bid at the auction with at least the value of the 1st lien. This is because a smart 1st lienholder will attend the auction, push the bid until the bidding stops or the bid is below the balance on the note... whichever comes first. In other words, they won't let the 2nd lienholder or anyone else "steal" it.

If the second changes their mind and if they do not foreclose, then what? What if they don't remove the lein?

Why woudl they remove their lien? The lien doesn't come off unless and until the balance on the Note is paid in full.

Would it make sense to offer them something? Anything we offer would put is in a negative equity situation, as we are just barely, if at all, above the first in equity.

You could offer them 10% like others are doing for 2nd lienholders.

Or if we can convince them they would get nothing or worse if they buy this house, would it be unreasonable to ask them to forgive the loan and forget about it? Again, they have nothing either way. Why not have nothing and let us keep our house?

You're dealing with investors. They think much differently than a Bank. Most hard-money lenders (including "seller" financing types) are very set on making money. Many of these types do this for a living and are successful. They will "buy back" their own properties, if they have to.

Lastly, and I've done all kinds of searches and have gotten a lot of conflicting answers, so I'm still confused about this, if they go ahead with the sale, and I think it is non Judicial, how long can we stay, assuming they will not voluntarily give us any extra time, and is there any way we could lenthen that time by an appeal to the court?

This depends on your State underlying non-bankruptcy laws. If there is a Redemption period, you stay through that period. If the State does not have a Redemption period, the lien holder is issued title to the property and then proceeds under State "eviction" laws, if they choose. The lender might offer you a lease option as well. These are all okay. (Oregon does not have a redemption period.)

I think you just need to prepare for the fact that you may be moving sometime in the future. Sure, see if you could negotiate, but I think you don't have the cash to make any serious offers and may find yourself foreclosed upon.

[Ineedhelp2]

[q]I don't know of many 2nd lienholders who want to actually hold the property (REO status). If they did, then they would need to bid at the auction with at least the value of the 1st lien. This is because a smart 1st lienholder will attend the auction, push the bid until the bidding stops or the bid is below the balance on the note... whichever comes first. In other words, they won't let the 2nd lienholder or anyone else "steal" it.
[/q]

I'm not sure I understand this. Don't they have to pay the first off if full regardless of whether they show up at the sale?

[Ineedhelp2]

We are in Oregon. I cannot find the information about this, so if anyone can help me, it would be appreciated.

Once the sale happens, how long may we stay in the house?

[HHM]

We are in Oregon. I cannot find the information about this, so if anyone can help me, it would be appreciated.

Once the sale happens, how long may we stay in the house?

Personally, unless the first is paid off in the foreclosure, I don't think the 2nd can kick you out.
As best as I can tell, Oregon has a 180 redemption period if the lender uses judicial foreclosure, but you must give notice to redeem within 30 days of the sale date. So arguably, you would have up to 30 days after the sale date to stay in the house.

http://www.foreclosurelaw.org/Oregon_Foreclosure_Law.htm

[justbroke]

I'm not sure I understand this. Don't they have to pay the first off if full regardless of whether they show up at the sale?

As HHM wrote, there usually is no bidding at all at these auctions. The first lienholder usually takes the property. They don't actually have to go out of pocket for anything. What I was writing was more strategy for the first if there was actually bidding. The first has a "budget" of the value of its lien, so can bid cashless up to that point. This would prevent anyone from trying to get it for less than that price.

There are a few interesting strategies around the itnernet for this. I couldn't find the one that I found two years ago, but the one at the link that follows, is similar!

http://www.auctusdev.com/foreclosureandbankruptcy.html

(Somehow I missed that Oregon has a redemptino period.)