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Bought House Subject to Mortgage

I bought a second mortgage at a foreclosure sale, and now can't recoup my investment and cover the balance of the first.

I purchased the 2nd mortgage on a house at foreclosure auction for $10,200. The first mortgage payoff today is $288k. I put $22k into fixing up the house for sale and there are 5k of back tax debt attached to the property. I've had the house on the market for 2 months and have dropped the price to my break even point and still no offers. The first mortgage holder has begun the foreclosure process. I have contacted them to see if there were any options for settlement. They maintain they can not settle with anyone but the person that the lien is assigned to (previous owner). Obviously I'd like to get out from under this property and get back my original investment. Do you have any advice or channels of recourse you might steer me towards?

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Bill's Answer
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Bills.com | Find Learn Save

You bought a property that was subject to a $288,000 senior mortgage. You did so, I surmise, because you assumed the property would fetch more than than the balance of the mortgage, plus your cost of renovations, plus your purchase price, plus the delinquent taxes. Now, when you try to sell the property, your guess as to the property's market value was too high.

To make matters worse, the holder of the first mortgage will not negotiate with you, and instead insists on working with the original owner. What is unclear to me is whether the first mortgage holder has the right to foreclose on property that has already been foreclosed upon. I am curious if you purchased the second mortgage at an actual foreclosure sale, as you mentioned, or some other right.

Consult with an attorney in your state regarding your situation. He or she will be able to gain a better understanding of the chain of event that occurred here. Also, he or she will have an understanding of your state's foreclosure laws (each jurisdiction's laws in this are vary), and will be able to advise you precisely.

I hope this information helps you Find. Learn & Save.

Best,

Bill

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2 Comments

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  • BA
    Sep, 2010
    Bill
    The first mortgagee has the right to sell or assign your mortgage to anyone. This right is separate and independent from the homeowner having any right to sell the property to another person and have the other person assume the loan. In this case, your second mortgagee either bought or is telling you it will buy your first mortgage from Indymac. You mentioned bankruptcy, and I will assume it was a Chapter 7. Were the mortgages included in the bankruptcy? If so, what was the outcome of the mortgages in the bankruptcy? Did you reaffirm the mortgages? Consult with your bankruptcy attorney about your precise rights.
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  • 35x35
    Sep, 2010
    karen
    hello we are kind of in the same situation, only we are the ones whose house was foreclosed upon by the 2nd mortgage holder (private party). the 1st (indymac bank) told the 2nd time and time again that they would not work with them, and now the 1st tells me that they are thinking about letting the 2nd assume our loan! We went BK, which everything, including the house was discharged end of june... however, we are now getting bills etc. from indy mac -- and learned that the 2nd paid $98,000 in arrearages! Unbelievable. If this mortgage was assumable, we could have worked out a deal or been able to sell the house at a time that banks weren't lending! my question would be... if the 2nd foreclosure is "subject to the 1st" how is this 1st still in our name and on our credit??? why wouldn't the 1st demand payment in full... and why wouldn't the 2nd have been prepared to pay off the 1st??? (and i won't get into it about the 2nd calling the 1st and pretending to be me on the phone, and the 1st telling me that they thought it was someone else on the phone...)
    0 Votes

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