Structuring a junior loan for a homeowner in her REO home

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Posted by Dean Engle on July 25, 2006 at 02:29:49:

John et al.
Give me your advice on the following: we buy non-performing junior notes nationwide, and here's one situation we've run into that we're not sure quite how to address: a VA property had a $225K 1st and a $64K 2nd. The 2nd foreclosed and the property went to sale, bank took it back. The house is worth $385K, so the debtor had just under $100K in equity in her house which she just lost. We bought the 2nd after the sale, and the 2nd really just handed over title for just under the face value of their note.

The homeowner's fico score is just north of 650, she's still in the property, and would desperately want to stay. We're looking at an eviction as an option to then list and sell the property. However, if we could structure something to her advantage, we would love to entertain the option.

What exactly can we do in this situation? Ideally we'd like to cash out of our $60K investment and pocket a cash profit to move on to the next deal. There's a risk with the homeowner too - since she defaulted on her 2nd mtge to begin with, she may well default again. She's reassured us, however, that her income is solid (we haven't yet had a chance to confirm), and the reason she stopped payments was because when her 2nd was sold, her new lender wasn't "licensed as a lender in VA" she claimed. For whatever it's worth, I believe her when she says she has the capability to pay a 2nd.

What would you do or consider in this type of a situation?

Thanks, Dean

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