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Vanishing 2nd Mortgages a Real Estate Investing Sweet Spot

Published on Wednesday - October 10, 2012

Second mortgages are vanishing, offering up unique new opportunities for real estate investing profits…

Bank of America has announced it will be wiping the slate clean for 150,000 U.S. homeowners by forgiving their second mortgage debt. In some similar cases recently this has been to the tune of over $500,000 a pop, though exactly who is getting this foreclosure relief isn’t clear yet.

This is easy for bank of America to do and is essentially a cheap way for them to get credit for meeting obligations under the massive mortgage settlement without actually losing an additional penny.

If these properties were to be foreclosed on without this forgiveness the odds are the bank wouldn’t see a penny in most cases anyway, though without an official waiver of the debt borrowers can be pursued for it years later when they are in a better financial position.

Obviously this cancellation of second mortgage liens won’t stop foreclosure action due to a default on first mortgages and may not immediately pull all homeowners out of the red but it will certainly help.

It will certainly help underwater real estate investors feel better about their own homes and creates some interesting opportunities for real estate investing on new deals.

Those snapping up subject-to deals could find a windfall in equity coming earlier than anticipated. It opens up the doors for buying homes where owners were turned down for short sales or loan modifications and now have equity. Plus, those jumping the REO line to acquire 1st lien mortgage notes can find even more equity and profit when foreclosing on borrowers or allowing them to hand over deeds-in-lieu of foreclosure.

While there is no guarantee that any specific property will have the second mortgage debt forgiven this could be an increasing trend to watch, bringing big profits to those flipping houses with multiple loans on them.

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