Surety Bond for 2nd Mortgage
Jun 24th, 2009 by kyle
I am working on a mobile home park deal right now and the seller of the park is going to hold a 2nd mortgage on the property. The rest of the money is coming from private investors. The only hang up on the contract is that the seller wants us to get a surety bond to protect his 2nd mortgage.
A second mortgage takes the second position if the borrow defaults on the loans. Typically, if a property goes to foreclosure, the first mortgage holder takes over the property and the other lien holders get nothing.
As much as the seller thinks we will perform on the obligation (and of course we will), he has been bitten by default before. His interest is to sell the property and he does not want the property back (which is what happened to him before). He just wants to know that he will get his money somehow.
The problem is, I know nothing about surety bonds. What little I have been able to find out so far leads me to believe that it is difficult to get for this type of situation, a private mortgage that is. If you have any information that would be able to help us out, we would really appreciate it.
I’m not familiar with Surety bonds but I’ll ask around for you. If I find something, I’ll throw it your way!
Great blog!
Jean-Guy Francoeur
Co-Author & President, Booming Practice
Thanks JG, I appreciate it.
[...] kyle wrote an interesting post today onKGE Real Estate » Blog Archive » Surety Bond for <b>2nd Mortgage</b>Here’s a quick excerpt [...]
Kyle,
You initial inkling is correct. A Surety Bond for this kind of situation would be difficult to get with agreeable terms. Surety is underwritten on a zero loss ratio and when you are getting a bond to protect a financial interest as opposed to fraud or misconduct (i.e. Mortgage Broker License Surety Bond) surety companies take extra steps to protect this zero loss.
For instance, in this case, the surety company may require collateral from the principal and in some cases full collateral to cover any losses which would effectively negate the purpose of the bond.
I’d be interested in talking with you more about this if you have anymore unanswered questions. Please feel free to call or email me anytime.
Josh Kayser
(800) 308-4358
josh@suretybonds.com
[...] while back, I wrote a post about surety bonds and how I needed one to complete a specific mobile home deal. My research led me to the fact that [...]