Looking for Options for a House in Foreclosure

[vmoney 0]

Hi all,

 

Just wanted to get your advice on a possible deal. We have gotten a response from one of our postcard mailings.

 

Details:

House MV = 300,000

1st mortgage = 270,000 (includes amount to bring house payments current)

2nd mortgage = 30,000

 

House is in excellent shape needs no work

 

Both loans are with the same lender.

 

I have some ideas on possible options to help this person, but not sure if there is a better way. Currently our plan is to try a short sale.

 

Any advice on other options etc is very appreciated.

 

Thanks!!!

[grannyguru 0]

I would think this might be a great place for a lease-purchase because a lp is one way (and reason) to sell above market as well as to move the place quickly.

 

You didn't state the amount of back payments owed, and you might not get as much profit as otherwise, but even a 4% increase would yield something, and you ought to be able to get some cashout for your services.

 

The seller should be more amenable to a lease-purchase because a short sale can cause them tax grief.

 

Of course wiser and more experienced folks here might have better ideas!

 

 

 

Alice

[vmoney 0]

grannyg,

 

what are the tax implications for the short?

 

Also, If I did a LP for full price, I'm sure the seller would go for that. My only reservation is that at 300K this won't be easy to move. My market is kind of flat so I can't count on appreciation. The lease payment would have to be somewhere near $2400-2600/month. It just doesn't seem like I'm looking at much of a profit here and taking on considerable risk. I don't usually like to work with no equity deals. My frustration had been that 95% of the people that call us are upside down on their equity/financing and I have been turning them away.

 

I was hoping to get some insight from someone with experience that would allow me to work these deals and figure out a way to get a good profit out of it.

 

Thanks!!!

[<Steve> 82]

Have you though about L/O Cooperative Assignments?

 

You work with the homeowner, market their property for a qualified tenant/buyer, do the paper work and contracts, then assign it over to the homeowner. You collect most if not all of the option consideration, and you are out and on to the next deal. The homeowner themselves follows through and manages the tenant/buyer.

 

Seems like it would work well with skinny deals.

 

<Steve>

[MichaelC 160]

vmoney, my first question is the amount needed to bring the existing loans current? If it's a considerable amount, a lease purchase deal is not going to work. It makes no sense for you to put down three thousand, five thousand, or more for a lease purchase. That's what we collect as smart investors. It's what we avoid paying as smart investors, also.

The answer to this question will go a long way in determing what you can do wth this property.

[grannyguru 0]

I'm not an accountant or a lawyer but as I understand it on short sales the IRS considers the amount forgiven as some sort of "profit" for the seller. Or at least it did. Maybe one of our more experienced folks will know. This should make a lp even more attractive to the seller.

 

Steve is right; I'd think a CA would be best because that way you are in and out of the deal for cash. If it's sold at a profit to the tenant-buyer it still might be of interest to an investor to pick up, making the deal stronger for the seller and safer all around. Although in a CA, you'd already be out of the deal anyway by that time.

 

Alice

[vmoney 0]

Michael,

 

The amount to bring the loan current is about 10k. I baked it into my numbers above, so it looks like this:

 

260,000 1st mort.

30,000 2nd mort.

10,000 to bring loan current

 

300K total

 

My thought was that if I could get a large enough up front payment from a TB I could give the seller the amount to bring the loan current (I would actually do this, not leave it up to the seller).

 

What % up front payment is reasonable on a house of this value. 10% would net me 30K, which would be enough to bring the loan current and walk away with about 20K.

 

Thanks,

Vito

[MichaelC 160]

Vito, it is highly unlikely you will receive $10K in option money on a $300K property. My rule of thumb is I am looking to collect the equivalent of between three and six months rent as option money. What are the monthly payments?

Or, you can figure on between 1 and 3 percent of the purchase price, as another general guide. Option money varies, depending upon the local tradition, the property value, the motivation levels of the people involved, your negotiating skills, etc. But, again, $10K sounds awful unrealistic to me. Think about it. With all the various mortgage programs available today, ten percent down will flat out buy the property for most anyone who can afford the monthly payments.

[Jason (AL) 1]

Vito, it is highly unlikely you will receive $10K in option money on a $300K property.

 

 

But, again, $10K sounds awful unrealistic to me. Think about it. With all the various mortgage programs available today, ten percent down will flat out buy the property for most anyone who can afford the monthly payments.

 

 

....but Michael, isn't $30k 10% of $300k?

Not trying to 2nd guess you, and my reason for asking is....would $10k as option consideration still be doubtful on a $300k property? (no matter the financials and what's owed). Just wondering, as I haven't dealt with any houses in that price range.

 

 

Thanks,

Jason

[MichaelC 160]

Vito, it is highly unlikely you will receive $10K in option money on a $300K property.

 

 

But, again, $10K sounds awful unrealistic to me. Think about it. With all the various mortgage programs available today, ten percent down will flat out buy the property for most anyone who can afford the monthly payments.

 

 

....but Michael, isn't $30k 10% of $300k?

Not trying to 2nd guess you, and my reason for asking is....would $10k as option consideration still be doubtful on a $300k property? (no matter the financials and what's owed). Just wondering, as I haven't dealt with any houses in that price range.

 

 

Thanks,

Jason

I knew I could count on my bud Jason to point out my typo. Yes, $30K is 10% of $300K. Mea culpa. I meant to say "Vito, it is highly unlikely you will receive $30K in option money on a $300K property." And when I wrote "But, again, $10K sounds awful unrealistic to me.", I meant to say $30K.

I have got to knock off those three martini lunches....

With a $300K property, $10K is not at all unrealistic. The problem with this particular deal is that the homeowner is in arrears for that amount. So, if Vito were to collect, say, $12K, the first $10K evaporates. Not cool.

[Jason (AL) 1]

Ah, you had me confused there for a second Michael.

 

 

I knew I could count on my bud Jason to point out my typo.

You meant this in a good way, yes?

Don't thank me. My highly charged intellect and spectacular vision did all the work guy.

 

I have got to knock off those three martini lunches....

 

....ahhhh, the life of an investor....someday I'll reach that status.....someday.....

 

So, do you think 2...maybe 3 CAs per month (from signed up w/the seller, to sold) is realistic, Michael?

....or is that setting my goals to low?

 

Thanks again kind sir.

[Adam King (MI) 1]

Hey guys/gals,

Don't want to stir too much up here, but no one has pointed out the fact that the property is in foreclosure. That to me means the bank owns it. There's no way to do a LP with a bank unless you have a cape and an "S" on your chest. (I came close once)

 

There's also no more room for a common short sale if the homeowner doesn't own it anymore. You can make an offer to the bank, but that would be about it.

Just thought I'd throw that in.

Regards,

Adam

[MichaelC 160]

Ah, you had me confused there for a second Michael.

That was the whole point, Jason. Confusing folks is what I do best. Try asking me for directions.....

So, do you think 2...maybe 3 CAs per month (from signed up w/the seller, to sold) is realistic, Michael?

....or is that setting my goals to low?

Two or three CA's a month is not at all unrealistic for anyone who puts out a little effort. You may stumble and struggle at first. But, complete one or two and suddenly your understanding of the entire process crystalizes. It's like all endeavors we undertake: we get better with experience. Eventually, that two or three deals a month may very well be too low an expectation. Start with getting that first one, and build from there.

Don't want to stir too much up here, but no one has pointed out the fact that the property is in foreclosure. That to me means the bank owns it. There's no way to do a LP with a bank unless you have a cape and an "S" on your chest. (I came close once) 

You're right of course, Adam. But my take on this property is that it is in a preforeclosure state. I say this because the homeowner responded to Vito's mailing. I am assuming that means the foreclosure process has not completed, and the homeowner is still on title. If that is correct, as long as the arrearage is brought current the foreclosure process stops. Now, if I'm off base here and I misunderstood all, then you are correct. No bank is going to listen to talks about lease purchasing or creative deals of any kind. Of course, the one who can best answer this question is the guy who started this ruckus: Vito, what say you?

[vmoney 0]

Of course, the one who can best answer this question is the guy who started this ruckus: Vito, what say you?

 

Michael,

 

As always you are correct. This is a preforecloser situation. The house has not gone to auction yet.

 

So, it seems as if a CA or sandwich LO is not in the cards. What about the short sale on this one. Anyone have experience doing these? We have contacted the bank and they have sent over the short sale package. Since both loans are with the same bank my strategy is to get them to forgive the second.

 

The problem, as I see it, is that if the bank goes for it, they will expect a purchase to cash them out. I really didn't want to have to carry the debt on this one. My only hope is that I can sell it out right in the time the bank gives me to cash them out. Of course this is normally a short time frame, 15days etc., so it seems unlikely that I would be able to pull this off and not loose credibility with the bank allowing the short.

 

Am I missing something?

 

Any comments are appreciated.

 

Thanks!!!

[MichaelC 160]

So, it seems as if a CA or sandwich LO is not in the cards.

True. Banks aren't interested in being landlords. In fact, I don't think they're even allowed to do so.

The problem, as I see it, is that if the bank goes for it, they will expect a purchase to cash them out.

That's correct. Once a bank takes back a property, they need to unload it. And that means cash. Short of doing that, Vito, this deal doesn't seem to hold any promise for you. There are other deals out there with less baggage and complications. Keep speaking with sellers. And if you're still wanting to work the online FSBO sites, try Craig's List. A number of folks here have had good success with their listings, including myself.