Discounting a Mortgage - Posted by Andy L (MI)

Posted by Peter_MD on November 20, 2002 at 07:24:01:


First, the information you presented is very confusing. You say you have this property tied up with a contract with the seller…you don’t say what the contract purchase price is to you. Also what do you mean with the statement “Willing to do a settlement for 25% so 9000”? I don’t have a clue what this means.

Now to the brass tacks…

The big issue is “I am working on getting Citifinancial to do a discount, but I am not making any progress.” You fail to tell the board your experience in discounting a mortgage, however, I can read between the lines and have determined you are a newbie. The first lienholder will (almost) never discount, why? Because the house FMV is $65,000 and they are owed $25,000. They are more than 100% covered…they are saying the heck with you. They will get all their money back plus any additional costs at the courthouse steps, guaranteed.

Now, if the 25% settlement you mention is the second lienholder (MidFirst) then that’s not enough. The second, for the most part, will be wiped out at the auction. They need to discount, in this example, at least 50%. I would tell MidFirst that I’d offer $10,000…on a note with monthly payments of principle only, with no interest, for 5 years. MidFirst, in this deal, is the one that’s hurting. They lent so much on something worth so little. Their loss could be your gain…if they cooperate (which I doubt they will).

After paying for the repairs, holding period, headaches for a multitude of various reasons, cost of hard or soft money, etc., you’ll be lucky to break even.

Now, if you can convince the owner/seller to pay the next three months on the first and vacate the premises immediately (highly unlikely), you could work this deal if you have a good repair crew that works fast and does a terrific job with the basic average repair parts.

If this is virgin territory for you, let it go. Even the best in the business (most experienced investors) will look at this for about 60 seconds and throw it in the trash.

I know you have spent much of your valuable time getting to this point with the owner/seller and having a signed contract. With the numbers, go back to the seller and tell them that the numbers in this deal will not work for you.

Lastly, if you have a willing seller (motivated without the means of making future payments), you could possibly make this a good deal, however, I recommend you leave this deal to the experienced pros who have the ways and means to make this deal work. What would you do if your home inspector (you did use one…I hope) tells you the roof has two good years left and the furnace has about the same. I agree you need to have experience to learn…just not this way. You could get buried so deep you could be willing to give the house away to get rid of the problem you inherited from the seller.

Just the way I see this situation…

Discounting a Mortgage - Posted by Andy L (MI)

Posted by Andy L (MI) on November 19, 2002 at 15:37:03:

I have a property tied up on contract with a seller. Here is the deal:

After Repaired FMV:65000
Repair Cost: 15,582.50
Clean-up 350
Painting 1500
Carpet - Replace whole house 3000
Yard 200
Kitchen 5000
Other-Finish Work on Inside 1500
Other-Deck, finish outside 2000
15% Additional for Over Run 2032.5
SUBTOTALS-----------> $ 15,582.50

1st Mortgage: CitiFinaicial $25540.74
2nd Mortgage: Midfirst Bank 35985.64
Willing to do a settlement for 25% so 9000
Past Due Taxes: 650
Total Owed: 35190.74

I am working on getting Citifinancial to do a discount, but I am not making any progress. I don’t think they are willing to do it. Any ideas? I even tried talking to the payoff manager (can’t talk to loss mitigation because its not in foreclosure) mentioning that they are going to let it go if it doesn’t sell. Is there any chance of getting a settlement from citifinancial or is it time to give up?

Andy L (MI)