Commercial Loans Blog

Second Mortgages Behind Your First Mortgage Investment

Posted by George Blackburne on Mon, Apr 4, 2011

Don't Count on the Second Mortgage Holder to Bring You Current

second mortgageLet's suppose you are considering a first mortgage investment of $100,000 on the purchase of a $200,000 little office building. The buyer is putting $40,000 down (20% of the purchase price), and the seller is carrying back a second mortgage of $60,000 (30% of the purchase price). A first mortgage loan of only 50% loan-to-value sounds attractive; but keep in mind that if the deal goes bad, second mortgage holders rarely bring first mortgages current, and if they do, they almost never keep up the payments for long.

You will recall that if the borrower defaults, the second mortgage holder will (almost always) be wiped out if the first mortgage goes to foreclosure. This is true even when there is a lot of equity in the property. Why? Because (almost) no one ever bids at foreclosure sales. Therefore, the only way for the second mortgage holder to protect himself is to bring the first mortgage current and to keep the first mortgage current while the second mortgage forecloses.

In real life, this almost never happens. In fact, I have owned Blackburne & Sons, a hard money lender, for over 30 years, and I can think of very few cases where a second mortgage holder actually brought our first mortgage current. More importantly, there has not been one case in over 30 years where a second mortgage holder has kept our loan current while he foreclosed himself. Not one.

The wise first mortgage investor will therefore never rely on a second mortgage holder to bring his loan current.


This is not an offer to sell first mortgage investments. An offer is made only through an Offering Circular. Investing in first trust deeds and first mortgages involves substantial risk. Please be sure to carefully review the Risk Factors section of the Offering Circular before investing. A substantial and prolonged decline in real estate value is possible.


Please click here for more information on first mortgage investments.

Topics: trust deed, trust deed investment, first mortgage, first mortgage investment, first trust deed, first trust deed investment, mortgage investment

(Almost) No One Ever Bids at Forclosure Sales

Posted by George Blackburne on Sun, Apr 3, 2011

Keep This in Mind When You Invest in Trust Deeds

trust deedWhen a trustee holds a Trustee's Sale (foreclosure sale) or when a sheriff holds a Sheriff's Sale, the reality is that almost no one ever bids at these sales. Even if a lender is entering a credit bid of just $600,000 on a property clearly worth $1 million, 95% of the time no one else will bid more than $600,000. I have been the owner of Blackburne & Sons, a hard money lender, for over 30 years, and I think we have been outbid at just two foreclosure sales.

So why doesn't anyone bid at these sales? The biggest reason is that bidders have to bid all-cash. In other words, a bidder would have to bring a cashier's check to the foreclosure sale of $600,000. Who has that kind of cash?

Another reason is that the bidder takes the risk that there may be some title issues or easement issues. In a normal sale, the buyer gets title insurance to indemnify himself against these risks.

Lastly, a great many foreclosure sales get delayed at the last moment. After painstakingly investigating title and after raising a whopping $600,000 in cash (cashier's check), the bidder will frequently have to wait around for a sale that gets postponed time and time again. It's so discouraging that most potential bidders just give up.

There is an exception to this general rule. If the property being foreclosed is an inexpensive home - a deal where the bidder would only have to raise $50,000 to $100,000 in cash - it would not be surprising to see one or two bidders competing to buy the property.


This is not an offer to sell first mortgage investments. An offer is made only through an Offering Circular. Investing in first trust deeds and first mortgages involves substantial risk. Please be sure to carefully review the Risk Factors section of the Offering Circular before investing. A substantial and prolonged decline in real estate value is possible.


Please click here for more information on first trust deeds.

Topics: investing in mortgages, foreclosure sale, Sheriff's sale, trustee's sale, trust deed, trust deed investment, first mortgage, first mortgage investment, first trust deed, first trust deed investment, mortgage investment