Help on Upside-Down L/H (Long) - Posted by DonDe
Posted by DonDe on April 14, 2004 at 11:36:24:
I have a motivated seller who bought a 2001 L/H package. They want to move to Texas. No equity. The purchase was loaded with junk fees to the tune of about $10K. Settlement costs for the lot and the home were included. Down payment of $5500. If they sold now there would be a prepayment penalty of a little over $5K.
Figures look like this:
Purchase price $96,000
Settlement fees/Points $ 9,000
Total 30 Yr. Mortgage $105,500
Monthly Payment $1,100
Prepayment Penalty $5K (Within 60 months)
I would like to do an Option to purchase or L/O anticipating a buyer.
Problem? All of the above figures.
Positives! Location is very desireable. Country setting frontage on paved road. Immediately behind property is a large development of stickbuilt homes with price ranges from $180k to $240K. Lot prices approx $40k (3/4 to 1 acre sizes)
This lot was bought for $20K and is 3/4 ac. The DW was bought for about $4K discount. Owner did some work for the dealer and was afforded a discount. He also, did his own well and septic so there is about $2K sweat equity.
Owner wanted $6-8K to walk with. If I could get a buyer to make $800/mo payments, the owners would subsidize the monthly payment until sold, but want it reibursed on the end. By L/O for 30 months, the prepayment penalty would not come into play and there would be a bigger payday when sold. (Have to make the exercise of the option after 30 months so as not to trigger the penalty.
My initial payday would be the option up front ($10-15K or more) possibly split with the owner to get their walking money to Texas.
A L/O purchase price would have to be around $140K in the event that the buyer wanted to purchase prior to 30 months and trigger the penalty of approx. $110,000.
Some help and input, please.
Don
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REPLY FROM STEVE on MH Forum
In Reply to: Help on Upside-Down L/H posted by DonDe on April 14, 2004 at 01:24:06:
this is real estate. So fix it with L/O, Sub2, wrap, or whatever. You propose L/O - if the numbers work for you, and you are willing to risk the option consideration (owner wants 6-8K, doesn’t mean they need that much), then give it a shot.
This doesn’t fall under the same parameters and restrictions usually discussed here - the value of your property will appreciate.
as far as your buyer wanting to payoff early, put your own prepayment penalty in the contract, that mirrors the one your seller has - your buyer pays it, so no big deal.
I would be concerned about the seller subsidizing 30+ months - that’s 30 x 300 . . . um, er . . . uh . . . that’s got to be almost a thousand dollars. 
Are you confident that they will follow through on this?
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Reply to Steve
Thanks for the reply, Steve.
I realize this is RE and was going to post on other forum, however, computer bummed out on me and as late as it was when I posted, didn’t get a chance to do so. Going to do that now. Wanted some input from this side, since it was a DW, manufactured home. Cannot reclaim the title since it is now considered “C” Home. Book on it is about $50K.
Love that “guestimate of 30 x $300”. Who needs a calculator, right? Comes in handy at the grocery store though. Those little, skinny things keep getting lost or sat on.
They are concerned with renting to losers and tearing up property. I told that I would “manage and oversee the property” after they left.
I suppose my problem is how to best minimize my risk with little or no upfront money with the the proper contract and still convince them that their (my) property would be taken care of in their absence.
Would having the payments handled through an escrow account solve the issue of follow through by sellers? And, would a signal be sent to the mortgage holders?
Thanks again, Steve and any others who would like to comment.
Don