Posted by phil fernandez on November 21, 2000 at 09:18:49:
Howdy Tim,
As you probably know Joe’s Helping Hand program is out of his Dominate Your Foreclosure Marketplace course. Here are the details to date of the specific deal where I sent out the Helping Hand letter.
On a regular basis I go down to my local courthouse to look up owners whose property are in a foreclosure action. Within the folders that I go through is info, owners name and address, property being foreclosed on, who is foreclosing, mortgage balance plus fees, interest, back taxes and legal fees to bring the loan current. Also it will tell you when the owners six month redemption period is up.
I am looking for properties where there is a big chunk of equity that I can acquire. Most of the properties have either very little equity or are over encumbered. And surprisingly many of these delinquient mortgages are only 2 to 3 years old.
Well this particular deal, I see that the mortgage balance is $43,000 with about $8,000 in back payments ,fees etc. But I also knew that the house was worth $70,000. I talked the bank into eating the $8,000 and I’d make sure that the payments would become current. It helped that the small local bank knew me well and trusted me.
So with that in place I sent the owner my Helping Hand letter. For those of you who do not know the letter it mentions that I would bring her mortgage current, I would buy the house, let her rent it back from me and I’d give her a one year option to buy it back at $70,000.
Her rent is $525/month with a $50 rent credit to be applied to the purchase price if and when she excercises her option. At this time she has made her first 5 payments on time, while I am working with her to clean up her credit problems. She also has a new fulltime good paying job and will be on the job for 12 months once its time to excercise her option.
If she excercices her option I win, if she doesn’t I still win. Either way I’m bound to get the $27,000 of equity in this deal.
Tim I have heard that you shouldn’t lease back to the seller in a situation like this and in some cases it might not be wise to. Through proper and deligent screening I think you can educate the seller to become a decent tenant with the opportunity to buy the house back. I spent a lot of time with this particular owner and found out she lost her job through downsizing and really wasn’t a deadbeat. Treat your tenant/buyer good for the twelve month period. There is always a chance that she could declare bankruptcy and the bankrupty judge could overturn your deal.
Like anything there are risks, but I think the rewards are much greater and you can control the risk to a degree. This deal is still a work in progress and I haven’t been cashed out yet.