Foreclosure in Denver>Question Details

elgordo, Home Buyer in Denver, CO

If I am the second note holder in a foreclosure, how likely am I to successfully bid and buy the property? (details inside)

Asked by elgordo, Denver, CO Tue Aug 7, 2012

I am one of three note holders on a property that is in the process of foreclosure:

Note holder 1: Bank A ($650K owed)
Note holder 2: Myself ($100K owed)
Note holder 3: Bank B ($700K owed)

"Bank A" has sent a notice of foreclosure with a scheduled "sale date" for mid-November (which I assume is the auction date). It is my understanding that Bank A will bid the amount they are owed.. I would happily bid up to $1m, because I love the property and think it is worth much more.

Is "Bank C" likely to outbid me, considering that is more than they are owed?
If "Bank C" does outbid me, do I have an option to bid higher?

I realize I sound extremely foolish here, but I did not expect my personal loan to result in the property's foreclosure. And (obviously) I have never been in this situation before.

I have a call scheduled with my attorney later this week, but wanted to get some insight from the community first!

Help the community by answering this question:

Answers

13
You will have the ability to redeem to secure your position as 2nd note holder.

Your best play is to contact the 3rd note holder and see what they are going to do. It's very likely that they will NOT want to redeem and NOT want the house, and be willing to sell you their position at a discount! Depending on what/where house is and who the 3rd is, they may not want to redeem on a $1m house at all, which means you wouldn't have to pay much of anything.

Be sure this property is worth all of the liens, back taxes, water, and any other liens or judgements, etc against the property AND the owner(s). You must have a thorough title search on the property AND the OWNER(s) at the time the FC was filed!

BE CAREFUL about listening to attorneys, and BE CAREFUL about seeming too anxious to own this house when contacting the 3rd. A little poker face could save you $100k+ !

Some of the advice below although well intended is spotty at best. We have 20+ years of experience and have facilitated thousands of transactions for owners, banks, and brokers.

If you need help, e-mail me: usrealestateandmortgage@yahoo.com
0 votes Thank Flag Link Sun Aug 12, 2012
You will have the ability to redeem to secure your position as 2nd note holder.

Your best play is to contact the 3rd note holder and see what they are going to do. It's very likely that they will NOT want to redeem and NOT want the house, and be willing to sell you their position at a discount! Depending on what/where house is and who the 3rd is, they may not want to redeem on a $1m house at all, which means you wouldn't have to pay much of anything.

Be sure this property is worth all of the liens, back taxes, water, and any other liens or judgements, etc against the property AND the owner(s). You must have a thorough title search on the property AND the OWNER(s) at the time the FC was filed!

BE CAREFUL about listening to attorneys, and BE CAREFUL about seeming too anxious to own this house when contacting the 3rd. A little poker face could save you $100k+ !

Some of the advice below although well intended is spotty at best. We have 20+ years of experience and have facilitated thousands of transactions for owners, banks, and brokers.

If you need help, e-mail me: usrealestateandmortgage@yahoo.com
0 votes Thank Flag Link Sun Aug 12, 2012
It appears that Tony below knows the process, He should be on your interview list.

Kindest regards and God Bless

Craig Hindes
Managing Broker
Sunshine Real Estate
http://www.cbsunshine.com
0 votes Thank Flag Link Tue Aug 7, 2012
You are the next in line, if the asset goes to foreclosure you will be given the opportunity to take out the first position. It will cost you $650K plus fees but it will secure your position. The Third lien holder will only get an opportunity if you turn down yours.

Yes, the Third position Lien holder can foreclose but will in no way can they assume the position of the first or second. They can't touch the asset but can touch the owner. I would recommend that you consult with a real estate attorney, not a regular attorney but a real estate attorney.

If the first position lender forecloses the second and third will go away, so the best way for you to protect your position is to buy out the first.

You may be able to work with the bank directly on a short sale of the property. Be the buyer on the short sale. You will lose your 2nd and the 3rd will get only 3 to 5,000 but you will most likely save 25 to 30% on the first. This is a good way to secure your position at a discount. If you want to save on Capital Gains, you can do this transaction through a 501c3 housing authority like Save a Child of Denver. They are a national housing authority.

My best advise is to speak with someone that knows about these types of transactions, then speak with your real estate attorney. Coordinate your Attorney with the Broker or Facilitator you chose for this property. Don't make the mistake of approaching the bank directly without having the right contact. I mean knowing the right contact that can show you a path through the red tape.

Your local bank guy or gal will not get this done. I would bet your neighborhood Broker will not either. You need a person that specializes in this type of transaction.

WE do this type of work all the time, but many people do. By many I mean 200 to 300 in the entire USA. Most Brokers will only muddy the waters to a point that clarity becomes impossible. They then will blame their lack of understanding on the bank or market conditions, anything other than themselves.

This is an easy transaction for someone that does them on a regular basis. Be selective, interview a few. If they know what they are talking about you will feel comfortable and have very few questions at the end of your interview. If you have a lot of remaining questions, look elsewhere.

If you need some guidance I am happy to assist. Here in Colorado I bet you will find at least 25 capable Brokers that can do this job. That leaves 6475 that will do nothing for you.

Make the right decision the first time and you will sleep at night. $100,000 is not a lot of money to some, but to us, losing a single dollar is intolerable. This is why I am the Broker for Save a Child Housing Authority. Pay it forward... and this great nation of ours will recover.
0 votes Thank Flag Link Tue Aug 7, 2012
Elgordo,

You are in an interesting as well as a precarious situation. A very unuaul situation as well. The advice below seems sound; but it really is a complicated legal situation. Take the advice here with a grain of salt and get a really solid real estate attorney to give you the best information that will keep you safe. Otherwise you could wind up with an overpriced home or make the wrong moves and lose you $100,000. We as Realtors are not attorneys and can give you very limited information without practicing without out an attorneys license with sever consequences. Best of success with this. We would like to hear the outcome if you don't mind.

Robert McGuire ASR
Broker/Consultant
Your Castle Real Estate
1776 S. Jackson St. #412
Denver CO 80210
Direct – 303-669-1246
http://theRobertMcGuire.com
0 votes Thank Flag Link Tue Aug 7, 2012
Well a few things. First really talk to an expert. I'm not sure what the expertise of your attorney is, but if it's not real estate or foreclosure attorney I'd ask for a recommendation to one. A couple of quick questions.

1) Do you want the house or do you want the 100K back?
2) What county is this in?

The reason I ask is all the counties trustee sales run a little bit differently. I have been to Arapahoe, Adams, Denver, and Jefferson. All of these have rules and etiquette that can cause things to be done differently. I once saw a person bid and announce, "As the second lien holder (blank) bids $112,000." This I think would get you thrown out of some auctions.

You don't have to bid on the property. As the second lien holder you don't have to bid. You will get a shot to redeem the auction bidder. For example say the property sells for 800K. You are allowed to buy the property for 800K. This is how the interest of the second mortgage holder is protected. Now if the property sells for 1.2 million then that is what you would have to pay to protect your rights. Bank C can redeem if they pay the purchase price plus 100K to note holder 2.

You can see what the property sells for at the trustees sale will greatly affect the strategy of Noteholder 2 and 3. Noteholder 3 looks to be in bad shape.

If you do decide to go and purchase or bid at the auction I would absolutely make sure that you go to another one a week or two before so you can familiarize yourself with the process.

I do offer consulting services on an hourly basis. I would also bring in one of two experts on this issue. You need to come up with the strategy of do you want the house or do you want the 100K? Let me know if I can be of further assistance.


Mike Henderson
Realtor, Accredited Consultant Real Estate (ACRE)
Your Castle Real Estate
Twitter @denverbroker

303-949-5848 (cell/text)
720-260-4783 (office)
0 votes Thank Flag Link Tue Aug 7, 2012
Thanks for your input, Mike.

To be blunt, I want the property. * Obviously I don't plan to lose the $100K note, which I understand is not at risk here. * I'm meeting with my long time real estate attorney tomorrow to discuss strategy, but wanted to toss this out to hear opinions. * Also, does the property have to go to auction? Or does that only occur if all notes are not paid off. I guess I'm wondering if this can all be settled without it going to auction, putting it at risk of getting purchased by a 3rd party.
Flag Tue Aug 7, 2012
Elgordo,

Love your name!!

You are in a great position as a Lender. The 1st forecloses, property goes to Sale, 1st Bank bids, at that point Public Trustee calls for any other bids. If anyone bids, it is call an "over bid". Any money over what the 1st is owed will automatically go to your 2nd until it is paid and anything over that will go to the 3rd until it is paid and anything left will go to the Owner.

If you, as the 2nd, did not receive the full amount you where owed, will have 7 days to match the bid, the 3rd will have 7 days after your 7 days to match your bid. If you match the winning bid and the 3rd does not match your bid, property is yours, Yeah!!

As with most things in life, there are no guarantees

If you really want the property for a million, start negotiating with the other Banks, the 1st probably won't take less, the 3rd might listen, if the 3rd does agree to a lesser buyout, start your own foreclosure, you will be able to cure the 1st just makeup back payments and fees and then continue making payments according to the Note and Deed of Trust. The trick is to make sure the 3rd will accept your offer and release their Note prior to you Curing the 1st.or at least concurrently. Now the Property is yours with lots less cash out of your pocket. Yeah, Yeah!!

You can start this process immediately, if it does not workout you still will have another shot at the County Sale. Yeah

With most of this stuff I can help you get the deal done, you still need to talk with your Attorney, but this is more of a negation than legal issue.

Feel free to contact me directly

Tony Kerstiens
Broker/Owner
Metro Brokers-dotcom RealEstate
303-880-3579
dotcomre@gmail.com
1-866-467-7865 fax


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0 votes Thank Flag Link Tue Aug 7, 2012
Thanks Tony- great input. The 3rd (Bank B), won't even return calls as they were approached for a short sale. Apparently they absorbed this loan from a bank that went bust. I will talk to my attorney tomorrow about how to approach them.
Flag Tue Aug 7, 2012
It's pretty complicated, I'm sure you have gathered from some of the responses. They are pretty accurate, but there is more to it than that. I would gladly help you with some strategies if you would like. Feel free to contact me and I can help you get the best option figured out for you.

Roberts Johnson
Broker/Owner
Cool Denver Homes, Inc.
roberts@CoolDenverHomes.com
303.525.7599
0 votes Thank Flag Link Tue Aug 7, 2012
As I understand it if Bank A is foreclosing then anybody will be able to bid at the time of the foreclosure auction and yes Bank A will most likely put their loan amount plus costs as the initial bid on the property.

Now the tricky part is the Bank B has a larger loan amount then Bank A so they may want to protect their money just like you are thinking. After the foreclosure auction any party with a lien will have a right to redeem the property by paying $1 over the highest bid plus any allowable fees, this depends on the county and the rules they use.

If I were you I think I would first try to purchase at the auction, and then if you are not able to then to go through the redemption process. You also need to make sure there are no other liens on the property or an IRS lien or any things like that because you'll most likely have to pay some of those. Water and IRS are the most likely.

Call me if you have any questions

Daniel Herron
720-323-9178
0 votes Thank Flag Link Tue Aug 7, 2012
My attorney has already confirmed the only liens on the house are us three note holders.
Flag Tue Aug 7, 2012
Are you related to the borrower? This could get tricky, but good thing you are talking to an attorney and other qualified professionals. Feel free to contact me if you are ever in need of a Denver realtor. --Jody West, GRI
0 votes Thank Flag Link Tue Aug 7, 2012
I am in no way related to the borrower. This was purely a business transaction between myself and him.
Flag Tue Aug 7, 2012
Well, here's how you would end up with the property - offer Bank B $250K for their lein, then you can buy out Bank A when your opportunity to redeem the property comes through.

Otherwise, here's what happens: Bank A forecloses, then you have the opportunity to redeem your note, which means that you pay off Bank A. After you redeem your note, then Bank B has the opportunity to redeem the note, which means that they have to pay you off all that you were owed (which is your note, plus the amount you paid off Bank A). If you don't think that Bank B will redeem, then don't contact them. If they do not redeem, then you will own the property.

Is the property worth mroe than $1,450,000? If it's worth significantly below that, then Bank B will probably not redeem the property just to lose more money. If it is worth that, or more, they may redeem.

Your attorney will be able to give you more information, and better info, but this is the basics. Best of luck to you!
0 votes Thank Flag Link Tue Aug 7, 2012
The borrower already approached Bank B about a short sale, and they won't even entertain the idea.

* Do I have to pay off Bank A in cash? I would imagine so. But coming up with $650K in cash will be kind of a pain.

* The property appraised at $1.6M when the last contract (in May 2012) fell through. Would "Bank B" be likely to pay everyone off? The property had previously been listed for sale for 2+ years with little interest.

* Can I offer more than what Bank A owes? Or is it merely a matter of "paying off who's in front of you"...
Flag Tue Aug 7, 2012
Let us know how it comes out. I am curious now.
0 votes Thank Flag Link Tue Aug 7, 2012
Talk to your lawyer. I am of the understanding that A would have to be paid off to buy it. Are you willing to go that high? C is the one in a bad position as well as you if A is bringing the foreclosure.
0 votes Thank Flag Link Tue Aug 7, 2012
Well yes, I would expect to:

* Pay off "Bank A" for $650K
* Add an additional $350K to the bid amount (totaling $1m offer)

Wouldn't "Bank B" now be on the hook to offer over $1M?
Why would I be in a bad position if Bank A is bringing the foreclosure?

I'm probably missing something here.
Flag Tue Aug 7, 2012
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