You may come across properties with multiple mortgages in your real estate investing.  These property deals can be a real hassle, but it is possible to negotiate with the multiple mortgage holders.

Sometimes you’ll come across properties in your real estate investing that have multiple mortgages.  In order to get your discounted sale on this property you’ll often need to negotiate with each mortgage holder separately.  This can get difficult.

Negotiating with the First Mortgage Holder
Usually it becomes a real hassle when you negotiate a short sale deal with the first mortgage holder, which is often the bank.  The bank may say, okay we’ll let you purchase this property for $60,000 and we’ll take a $45,000 write off on the mortgage.  However, since we’re taking such a big write off, we’ll only let the second mortgage holder take a $1,000 for their claim to the property. 

Remember, when it comes to property sales, its first come, and first serve.  The first mortgage or lien holder on that property gets control of that property, that mortgage and gets to say what everyone else behind him gets for their claim.  This may be all of the cash or it may be none. 

As you can imagine the second mortgage holder won’t take too kindly to this deal.  They’ll probably hold up the short sale by telling you that they won’t sell unless they get $5,000 for their claim, instead of the $1,000 that the bank wants them to take.  Many real estate investors stay well clear of properties with multiple mortgages, but it’s possible to make the deal work.

How to Get around this Conflict
You could spend your time as a go between for the different mortgage holders, trying to get everyone to get along.  Or you can just make a note purchase! 

Rather than making a note purchase for the first mortgage you buy the note on the second mortgage!  That’s right, go ahead and pay the second mortgage holder the desired $5,000 for their position as second mortgage holder.  You become the bank again and willingly accept $1,000 for the short sale.  Thus, the deal can close and you don’t have to waste valuable time being the bank’s gopher.

Any time you run into an obstacle in a deal, you should ask yourself, ‘what would happen if I bought the note?’   Can’t get the second mortgage holder to accept the bank’s offer?  Buy their note!  The bank won’t let you give the default property holder a little cash for their trouble?  Buy the note!  It’s an amazingly easy way to think outside the box and still make your money.