We have an interesting situation shaping up in our neighborhood. A property was sold in early January. The buyer got a 1st mortgage, from the bank, for about 65% of the purchase price and a second, from the seller, for almost all of the other 35%. The sellers extended themselves pretty far–the place had been on the market awhile, the price was high, and the buyer underqualified (i.e. the bank lent 65% but they see it as 80% LTV).
Anyway, we think the buyer has become unable to pay, and they have put the property back on the market. We were interested the first time, but not at the price asked, and we’re interested again… also not at the price asked. We think the right price in this buyer’s market is significantly less than what is being asked, which is less than is owed on the mortgages that are in place.
My question: with two mortgages, can a sale occur if the second mortgageholder is not paid off 100%? We may make an offer, but it would only be enough to pay off the 1st and half of the 2nd. The seller would be upside down unless they put in their own money to finish paying the 2nd.
What happens in situations like these? Does the property have to go into foreclosure before a sale can occur (with the second holder getting the shaft)? If the current owner/seller is unable to pay off both loans thru a sale, because no one will offer enough, do they basically HAVE to default to get out?
Replies
David
I know of a house that was for sale where the the final sale price was less then the payoff.
The way that I understood the transaction was that the seller had to get permission from their bank to do so and apparently they did because it did sell and for less then they owed.
So yes, it can happen but I'm sure the lenders will have some say in it.
Doug
The house we bought before this one, the sellers brought a check to the closing in addition to our check and mortgage. Not sure what preparation they did with the mortgage company, but it was a standard sale, not a foreclosure.
They'd been sold a bad loan, and had already come to grips with the fact the were upside down. I believe they were still making payments. They were willing to negotiate on what appliances stayed, etc. but not very far on price. The price was still right for us - they knew they needed out and cut their losses to make it happen.
If they are behind in their payments you may be able to approach them or the bank for a short sale. I don't really understand these - maybe someone else can explain it. Something to do with banks negotiating to avoid foreclosure proceedings. Don't know if this works with two mortgages.
You're on top of it.
In Va, default culminating with a sale on the courthouse steps is the solution. Possibly not best for you. Depends on sale price.
Long time ago I knew a guy who was in default on his first. He approached his bank and purchased the note (for a discount). Was still in default on his second (your scenario). He foreclosed upon himself. The second note holder (the seller) was at the auction, lost $25k. My client was not the successful bidder. Original default owner who foreclosed upon himself bought the property.
I was very impressed. As was the seller, who lost $25k.
Today's numbers, multiply by 10. Talk to the first holder?
PAHS Designer/Builder- Bury it!