Dallas-Fort Worth Real Estate Investor Club

Howdy ladies and gents,

Yesterday, I listened to a BiggerPockets podcasts about Notes.  The guests only bought notes for second lien positions.  So, my question is "has anyone used a second-lien position on a seller-financed deal?"  I've read a few blogs about the seller being in the second lien position and the traditional mortgage company being in the first but was unable to find any cases were the seller was in the first lien position and the other lender was in the second.

Yolanda

2nd liens are typically HELOC (Home Equity Line of Credit), or to cover gap funding on a purchase of a property, or a seller finance where the seller might carry back some of the debt, or by a contractor.

We have done very well with buying defaulted 2nd liens, though now they are over priced, just like everything else.

So if you have a specific question on them, let me know.

Chris Winkler wrote:

2nd liens are typically HELOC (Home Equity Line of Credit), or to cover gap funding on a purchase of a property, or a seller finance where the seller might carry back some of the debt, or by a contractor.

We have done very well with buying defaulted 2nd liens, though now they are over priced, just like everything else.

So if you have a specific question on them, let me know.

Thanks for replying.

I'm working on offers for my first multi-family properties. I am strictly looking for owners open to seller-financing.  For the down payment, I am looking for either a lender or, preferably, equity partners.  The second lien position seems to be risky.  So, can you tell me your thoughts on the following

- what can buyers/investors do to reduce risk for lenders in the second lien position?

- what would cause an investor/lender to prefer or accept a second lien position?

Thanks

Yolanda

Yolanda Columbus wrote:

Thanks for replying.  

In the instance were the home is owned free and clear by the seller and the seller is willing to finance, is the second lien position equivalent to a first lien in terms of foreclosure.  So, if the buyer doesn't pay the 1st lender (e.g. the seller), then the lender in the second-lien position has the option of paying the past due mortgage and selling the property.

Please let me know if my logic is flawed.

Yolanda

It is irrelevant if the seller owns the home free and clear or not.  They are either willing to offer seller finance or not.

I assume you are saying the seller gives a homeowner a first lien note and you give them a second lien note.
If the homeowner stops paying any lien holder, that lien holder may decide to foreclose.

If the homeowner stops paying on both the first and second liens, you are highly dependent on the first lien holder working with you because they can wipe you out if they foreclosure.  Most of the time, they will work with you if they think they are going to get paid.  If they are willing to wait, you can foreclose your lien and take over the property.  Then, you can pay the first lien holder what is owed and do whatever you would like with the property.  I would not front money to the first lien holder before you own the property since you might not get it back.

Sometimes, the notes have terms that give you the right of redemption, etc. but not always.  Make sure you understand what can happen when things take a left turn.

I hope this helps,
  Neil Aggarwal
  NSA Partners, Ltd.

Chris Winkler wrote:
HI Neal, no, its to get them repaying so we can season it and sell it later. We do go right to foreclosure if they ignore us and we have settled 4-5 for full UPB and waived all penalties & interest. Only one went to sale and someone got it, subject to the first lien. This was in GA. But now they are very expensive and not wanting to pay so much for them, just like everythign else!