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AngelMG

1st Subject To

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This is how our first subject 2 deal has played out. This is another person that called off our signs. She said she was 3 - 4 payments behind. I set up an appointment. She called and cancelled, saying her and her husband were going to try another avenue, to sue the insurance company. She called back about a week later and said this wasn't working either and they would still like us to buy their house. Here are the numbers.

 

It is a 4/4 1/2, colonial house close to a historic area. It does not need much work.

 

Market Value: $250,000 - $260,000

1st mortgage: 173,000

2nd mortgage: 12,900

7,800 to catch up the 1st mortgage

 

 

We knew about the 1st mortgage and called the mortgage company to find out the amount needed to catch up the mortgage. When we had the title checked we found out about the 2nd. What can we do about the 2nd? Could we go ahead and record our deed and do a short sale on the 2nd? We are familiar with the concept of a short sale, but do not have the documents to do it. Is this an option to do the short sale if we are keeping the 1st in place.

 

Our intentions are first to try to sell it outright fast. Second, to find a T/B and L/O.

 

Foreclosure proceedings will begin on Nov. 21.

 

Thanks.

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You have a few choices that I see immediately:

 

You could try to short the second,

Or

 

Try to have the owner get the financial institution to agree to convert the 2nd to a personal loan.

Or

 

If you can find someone who needs owner financing and wants a big home. 10% of FMV will bring the loans current and you can be the bank and do a wrap around mortgage. Of course, your sell price would be higher. than $250 K with owner financing

 

just a quick response off the cuff.

 

 

option

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Another way to do it ( I believe) is to have the sellers pay on the second. Have you asked what the second was needed for?. Was it personal, or did it go toward fixing the house? If it was personal, then why should you have to spend a dime on it. If it was for fixing you could also go the way of a short sale.

 

just my thought.

 

"if you always do what you have always done, you will always get what you always gotten".

 

kennon

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Thanks for the feedback, Option 8 and Kennon. I like the idea of getting them to pay the second. It is a mortgage company on the 2nd so I don't know if they would convert it to a personal loan, but if we kept it as a 2nd how would I know if they would pay? And does it matter on a 2nd? What can the mortgage company really do if it doesn't get paid?

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I believe you can have them pay you for the second, and inturn you pay on the second. That way you know for sure it is being payed. Just an idea.

 

kennon

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What can the mortgage company really do if it doesn't get paid?
To you, nothing. That's one of the attractions for investors who utilize Subject To's.

The homeowner's name remains on the note, while you take the deed.

Of course, therein lies the controversy, too. An unscrupulous investor could put an unsuspecting homeowner in a world of hurt if said investor doesn't live up to their end of the deal.

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To you, nothing. That's one of the attractions for investors who utilize Subject To's.

The homeowner's name remains on the note, while you take the deed.

 

Hmmm, I really like that part. They will have a lien against the property, though, when my T/B goes to get financing, right? Or, an even better option in this case, what if I get my retail buyer? They will get financing and have to pay off the mortgages first and then I get the balance. How do I get that $12,900 or would I lose that in this case. Would I need to negotiate a short sale or release of lien with the mortgage company of the second mortgage first? We are going to try to get it changed to a personal loan for the sellers too.

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Angie,

 

If you have everything signed to look into there finances I recommend you contact the second lien holder and discuss a shortsale with them... Tell them that the person is about to lose there house and they will lose out completely on there mortgage.

 

They may be motivated to take pennys on the dollar. This is something I would take care of before any contract you sign with the homeowner

 

Best wishes,

 

Michael Pine

:ph34r:

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Some more activity on this deal. Actually we already recorded our deed on this house. Can we still work on the short sale? What kind of documents do we need? We already have the authorization to release from the seller.

 

Actually, one of the sellers, the husband called us today to say he wanted out of this deal, that he was going to borrow the money from his brother. We did not know what we were going to do at this point. Now, he has since called us back and said the deal is back on. But, what would, should we have done if they wanted to back out now.

 

Also, we said we would try to get them about $3000 so that they could move out and get into an apartment. What would be the best way to handle this?

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AngelMG,

 

will market rents cover the second and leave you some cash flow? you may have to do something like what option8 suggested. Sell on Contract For Deed (CFD) have it set up with a balloon in say 18-24 month

 

sell 275k @ 10% interest w/ 30yr amortization of around 1800 piti. (9%=1700)

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AngelMG,

 

A couple of things:

 

First, if you do have room to pay some money to the sellers I would handle it in the following way. If you are going to pay them $3K then I would try to get them to do something for that money. Does the house need painted, carpets need cleaning, etc, etc. At a minimum, make sure they leave the house clean, and not full of their c%#p. Also, DO NOT pay them a dime until after they have moved out, handed you the keys, and the house is in whatever shape you agree upon. If you pay them first, they may never move out.

 

Second, I personally would go for a short sale on the second. You'll want to make sure you do this before you bring the first current however. Once the second lender thinks the foreclosure is cancelled, they won't want to deal anymore. I always offer 10% of current balance as my initial offer...and many will accept that. So in your case I'd offer around $1300. Once they accept something at 50% or below, try to get 30 - 60 days to pay it off. That potentially gives you time to find a retail buyer before this has to be paid.

 

Once you get a payoff acceptance of 50% or less from second lender, go ahead and bring the first current (once the sellers are out).

 

List the home immediately (once the sellers are out and you have it in "show" condition) for 90% of the FMV. If FMV is $260,000, then I would list it for $234,000. Make sure to negotiate a reasonable Realtor commission. I wouldn't pay more than 3% or 4%. Explain to them it should be an easy sell since it is listed at 90% of FMV. Also offer to put your phone number into MLS, so you will take all calls, market the property, and do all showings.

 

Lets say it sells for $234,000, you get a 4% Realtor rate, and the second only accepts your 50% offer of $6,450, and you pay the sellers $3,000 in return for getting the home in "show" condition.

 

Here's how the numbers work out for you:

 

Sales price - $234,000

- minus -

1st Payoff - $173,000 (paid at closing)

2nd Payoff - $6,450 (paid at closing)

Amt pd. to bring 1st current - $7,800 (paid when 2nd lender accepts 50% offer)

Amt pd to sellers - $3,000 (when they move out)

Realtor commission - $9,360 (paid at closing)

 

Profit (before expenses & closing costs) - $34,390

 

Even with closing costs & a house paymenty or two, you should still do somewhere between $25,000 and $30,000 in profit over a 30 to 60 day period.

 

Just my two cents

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