Home › Forums › General › EHTrust/EHT Topics and Creative Real Estate Financing › anyone experience shorting 2nd’s and reinstating first?
March 12, 2010 at 6:27 pm #6144
can anyone share their experience when the 1st lender doesn’t want to accept a short but the 2nd lender is willing to accept the short? you then reinstate the first and put in an RB to cover the 1st and create your positive cashflow?
the seller would still be involved but more likely they’d get a 1099 for the 2nd.
that would be a cool niche to specialize in purchasing 2nds/junior trust deeds with private money to reinstate the first and move in an RB. then the 1st monthly payments will line up within fair market rents.
anyone want to brainstorm with me?March 12, 2010 at 7:28 pm #31630
do you think real estate agents are responsive to this type of hybrid method of shorting the 2nd only with our intent to do a lease to own?March 12, 2010 at 10:45 pm #31631
Interesting idea, but it would be hard to keep coming up with these homes.
AmyMarch 12, 2010 at 11:31 pm #31632
first attempt is to get the 1st lender to put the arrearages on top of the loan
if they dont, then ask the 1st lender to put half of the arrearages and you pay half up front
if the top two dont work then reinstate it completely with your funds or private money
if none of these work, then short both the 1st and 2ndMarch 13, 2010 at 12:25 am #31633
found some good discussions
What’s the difference between a “Shortsale” and a “Junior Bene Buyout”? Does one negotiate differently regarding them?
1) What are the indirect and subtle differences when purchasing from a homeowner with a junior bene buyout versus puchasing from a homeowner and asking the junior bene to accept a short sale? I understand that the junior bene buyout (JBB) is a purchase of the note and trust deed at a discount and a short sale is a loan satisfaction of the note and reconveyance of the TD for less than the remaining principle (i.e., the loan is transferred vs. loan is satisfied).
2) Aside from the logistics of working with the lender, are the purchase strategies and profit different (i.e., when do you try for one vs. the other)?
3) When does a junior beneficiary accept a buyout versus a satisfaction? Is it driven by market or other conditions?
I’ve seen comments on these boards that short sales can be difficult, because the holder of the first refuses to discount at all… and expects the holder of a junior note (and the home owner) to not get anything. It creates a lot of time-consuming haggling and coaxing all around.
At least with the JBB you are negotiating primarily with the holder of the 2nd. Then you can quietly bring the first current, and make the payments on it.
The biggest advantage to buying out a junior note, is that it gives you multiple ways to make money.
You can reinstate the senior, and keep the existing financing in place. That’s usually easier than going through a traditional lender’s approval process later, if you buy a foreclosure at an auction.
You can sell the house for a profit, or keep it as a rental (since you have the financing already set up.)
You can also buy the 2nd as a “hedge”. Suppose a house is going to sale at 70 cents on the dollar. That’s about what most investors will pay, but you want to be sure to get it– (and not overpay, in case some newbie investor shows up.) You can buy the second on the cheap, then bid as high as you need to at the sale. The overbid after paying off the senior loan will simply end up in your pocket.
It’s possible to make money without even taking title to the house. If there’s enough equity in the property, foreclosure speculators at the courthouse may bid high enough at the auction for you to recover your purchase of the 2nd, and yield a profit to boot. There’s even the possibility the debtors get their finances back in order. They’ll make payments on the second again, and you can dish it off to another investor (note buyer).
But all of this comes with some risks. You’re going to be making payments on the senior loan for as long as you hold the house, so you’ve got to be sure your cash flow can handle unexpected delays in your plans. And you have to make up all the arrears on that senior, which could be more than you think. Debtors can sometimes fight a foreclosure for a year or more, and the arrears in principal, late fees, and interest can be substantial.March 13, 2010 at 1:03 am #31634
Tell the lender on the 1st that if they don’t cooperate you’ll demand that they produce the original note.
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