Posted by Scott SC on April 27, 2000 at 14:33:13:
Exactly. The key is to ‘control’ the property at a price much below the FMV. If the guy doesn’t pay his lease…evict him and find another buyer.
You have the chance to get paper work rolling where you can control this property for much less than it’s worth. Go for it!
House almost went to foreclosure, now owner wants to stay!! - Posted by Dawn and Don_MD
Posted by Dawn and Don_MD on April 27, 2000 at 12:46:39:
HERE ARE THE DETAILS:
Have a person who was in the process of going to foreclosure. They have gotten the bank to stop the foreclosure, but the bank wants someone else to take over ownership of the property. The owner wants to stay in the property and is looking for someone that will let them lease option the property back in 6 months to 24 months. He says that he will be receiving a loan coming in the next couple of months that will pay off the mortgage that the bank wants (approx. $110,000; this includes $98k old mortgage and late fees and charges). The house has been appraised at $150k, which would be our option amount.
The owner says their is a way to get us cash back at settlement of about $5k. We’re new to this so we are confused on how that would work. Right now we think the best way to qualify for the mortgage with the bank is to use the lease as the verifiable income. We think our credit to debt ratio would be to high and we have had a few blemishes in the past year that we are trying to clear up on our credit report due to late payments on some credit cards.
We would like to do this deal if it is truly something that can be done. We definitely could use the $5k up front and the $30k on the back end when this guy exercises his option. I guess the worst cases scenario is he doesn’t pay and we foreclose and sell his property to someone else.
Can some of the experts give us advice? We like the numbers but aren’t quite sure of the details. Please help.
Dawn and Don_MD
Re: House almost went to foreclosure, now owner wants to stay!! - Posted by eric
Posted by eric on April 27, 2000 at 15:15:19:
I pretty much stopped reading at “He says that he will be receiving a loan coming in the next couple of months…” So, to get this straight, the guy didn’t even have money to pay the mortgage in the first place, but now he’s got a windfall coming? Sounds like he’s trying to take you for a ride. If the house really is worth 150, and 110 really is all that’s owed, then I would just offer them what they owe to get out. You can probably find some money with softer qualifying if you really have that much equity - maybe a money partner to put up the cash, then buy it and split the profits at resale. Just make sure you have an assignable contract in hand before approaching someone, or they will just go around you straight to the buyer. Also, are there any other liens or judgements on the property he has “forgotten” to tell you about? You must do the research at the courthouse on this, you cannot rely on what they are telling you. If he’s not motivated enough to take a cash out right now, then tell them to call you if things don’t work out, and follow up next month. I doubt they will be doing any better at that point.
Re: House almost went to foreclosure, now owner wants to stay!! - Posted by Bill K. - FL
Posted by Bill K. - FL on April 27, 2000 at 15:02:22:
When you say the “bank wants someone else to take over ownership” is that what the owner told you or the bank?
I would want to get this clarified with the bank. The owner is desperate and might tell you anything to get what they want. The way I see it, the only way the bank will stop the foreclosure is by having the past due amounts of 12K brought current or have the mortgage paid off. They are concerned about getting
their $. You need to be concerned about where will the 12K come from. If the bank doesn’t receive the 12K plus the new monthly payments they will foreclose period. As far as the owner getting a loan, don’t hold your breath. I wouldn’t count on that. Probably just wishful thinking. If you can come up with the 12K on your own and take title in a trust subject to the first you could try the L/O with the owner as mentioned previously. And evict if/when they don’t pay. Or take title under the condition they move out and sell immediately or L/O to a new tenant buyer.(Use their option money towards the 12K). Good Luck.
Re: House almost went to foreclosure, now owner wants to stay!! - Posted by Steve-Atl
Posted by Steve-Atl on April 27, 2000 at 14:47:35:
I will not buy a house in foreclosure and rent it back to the previous owners. I’ve heard from other investors that there are cases where the previous owners did not pay the rent, and when evicted, they sued the new owner saying they didn’t understand they were selling the house. They claimed foreclosure fraud and won judgements against the investor.
I’m not a “legal beagle”, so you may want to ask lawyers in your area, but for me its not worth the risk. The previous owners move out or I won’t buy the house. I also don’t give them any money until they do move.
Re: House almost went to foreclosure, now owner wants to stay!! - Posted by TomC (Md)
Posted by TomC (Md) on April 27, 2000 at 13:28:53:
I wouldn’t be so hot to lease a house back to a guy who almost lost it to foreclosure. Unless that was a documented, incredibly bad set of circumstances he just experienced, he will probably end up not paying the rent to you on time either.
And the guy is trying to reel you in with that “cash back at closing” line, IMHO.
I’m not so sure I would buy a home with the hopes of getting it back through foreclosure. Why not just buy it outright and lease/opt it to some more credit worthy people?
TomC
Re: House almost went to foreclosure, now owner wants to stay!! - Posted by Scott SC
Posted by Scott SC on April 27, 2000 at 13:23:09:
Hey
You’re in the drivers seat here. It sounds like a sound deal. If you’re going thru convential financing you will have to come up with some up front money, usually 10%. Make sure you structure the lease/option carefully. If he does default on payments you will not have to go thru the foreclosure, but the easier and shorter eviction process. I see the bottleneck in this process being your financing.
Maybe you could get him to owner finance the property to you and you could lease option it back to him.
I agree!! - Posted by Mark (SDCA)
Posted by Mark (SDCA) on April 27, 2000 at 14:09:27:
This is the one aspect of a sale and leaseback from a pre-foreclosure that I never understood. If the owner couldn’t/wouldn’t pay the MORTGAGE. How and why is he going to pay the rent? Belive me, most people are much more serious about paying on a house they own than on one they rent. Are you taking a loss every month so that the owner can pay LESS than what he was paying when he was paying the mortgage??
In fact, I asked Joe Kaiser exactly this question on a similiar deal he was dealing. His answer was that he HOPED they guy didn’t pay. He wanted the spread between FMV and what he was buying for.
Cheers,
Mark
Re: House almost went to foreclosure, now owner wants to stay!! - Posted by Scott SC
Posted by Scott SC on April 27, 2000 at 13:39:54:
Well the problem with buying it outright is the upfront cost, which it sounds like they don’t have because they were anxious about getting the 5% the current owner promissed.
But if you get the owner to owner finance the property and he doesn’t want to move out of the house you’re going to be up the creek because they won’t leave…and you owe them money.