I'LL TRY MY QUESTION again... - Posted by Redd(CT)

Real Estate Investing
1

Posted by JB on July 29, 2001 at 14:24:50:

I would NOT allow the seller to remain in the property if I brought the property out of foreclosure. Once that happens, the seller will “forget” about you being the white knight. A sale to you (via deed) with lease back to the seller may very well be viewed as a LOAN. I suggest you check your usury laws in your state. Ever see those attorney’s who will help people who have been “taken advantage of” by some investor looking to make a profit? If you haven’t yet, invest for a few years and you will hear absolute horror stories at your REI club. My suggestion would be to “get the deed”, (don’t record it yet), MAKE NO PROMISES TO THE SELLER, use a CYA letter, then attempt to negotiate with the lender to discount the balance of the loan, or put the payments past due on the back of the loan, etc. Only if the lender commits in writing, then record the deed. If the lender won’t cooperate, buy it at the courthouse steps or REO. DON’T ALLOW THE SELLER TO REMAIN IN THE PROPERTY!

2

I’LL TRY MY QUESTION again… - Posted by Redd(CT)

Posted by Redd(CT) on July 29, 2001 at 09:41:18:

I got a call from a seller yesterday. He is in foreclosure.
He wants to stay in the house. I was thinking w/ all that equity why doesn’t he refi?

here are the stats:
300K left on the mortgage
450 appraisal on house (last year)
he has been in foreclosure for about 8 months.
he said the PITI is about 3000 per month.

questions:

  • I know what I would do if he didn’t want to live in the house b/c if I got the deed…the person I put in the house would put up a down payment to make up the back payments.
    YET, the seller wants to keep the house & is willing to share some of his equity to help him keep his house.

any suggestions?

3

Follow up! Is it still worth it? - Posted by Redd(CT)

Posted by Redd(CT) on July 30, 2001 at 10:16:47:

The seller called me again this morning. He asked me if I found any info that could help him.

I asked him, How do I know you can make these payments if I decide to take over the loan.

Seller: His attorney was ‘managing’ his properties (making the payments & taking care of the tenants etc… etc…) and was embezzeling his money. The attorney did not make the payments. The attorney is now in jail.

I said how do I know this? I what to see verification of this PLUS a statement from the bank to see how much in the hole you are in.

If all this is infact true? should I still forget it or reconsider?

thanx,
Redd(CT)

4

Re: I’LL TRY MY QUESTION again… - Posted by wayne

Posted by wayne on July 30, 2001 at 01:14:54:

I am no brain surgeon, but I do know that starting out you should never let an owner that is in the process of foreclosure stay in the property. It is good that you recognize the possibility of profits in the equity the owner has in the home, as an investor that is one of the things we are constantly looking for. But you must look at the overall situation also, An experienced investor with years of experience may or may not be able to make this deal work, but their is a high risk of getting burned if the owner goes for bankrupty, just what you want someone living free on your dime (or in this case a helluva lot of your dimes).

I commend you on racking your brain to find solutions for this problem, the most sucessful investors are the ones that find solutions where others fail. But along with each deal, you must assess each situation and like it or not, you will walk away from more than you take.

Just my opinion,

wayne

5

You keep hearing it. - Posted by Bud Branstetter

Posted by Bud Branstetter on July 29, 2001 at 17:06:48:

Everyone says don’t let him stay. 90% of the time they are correct. You fund the money. Then he files bankruptcy. Tries to do a chapter 13 plan but after another 6 months or so still can’t make it. So he converts to chaper 7. Still more time.

What is better off is to work with him to save some of his equity. Move and get somebody in there that can afford the payment at least temporarily until he can catch up.

6

Re: I’LL TRY MY QUESTION again… - Posted by KeithK2

Posted by KeithK2 on July 29, 2001 at 12:55:56:

Redd,

In order to give you an answer, I’m going to make a number of assumptions up front and you can consider them in that light. I’m assuming that:

  1. You’re a relatively new investor with limited experience in structuring deals.

  2. That the homeowner has not gotten a hard money loan because of some reason that he can’t change right now (like no income to make payments on it.)

  3. That you are going to have to go to a lender of some sort, probably a hard-money lender, to get the money to buy this property.

Since you’re new, I wouldn’t recommend taking on debt without haveing an iron-clad, clearly outlined exit strategy and timetable for this deal. Keeping a homeowner in a property they obviously couldn’t afford before is taking on too much risk for too little reward. Their attachment to their house is understandable but it is likely to cause them to reach for some legal maneuver to keep you from selling the house in order to take your profit. If they need time to relocate, you can give them occupancy in exchange for rent for a period of 30 to 90 days or so. Remember, you’re racking up interest expense on what is probably VERY expensive money every day you can’t market this house.

Understand that ALL homeowners want to keep their house after you save it for them. Sitting down with your calculator and a yellow pad quickly outlines to them whether or not their dream is possible. Most defaulted homeowners dream of a white-knight investor making them a loan to save their house that has neither payments due nor deadlines. I’d let them down as easily as I could on what to expect from the deal. Better to get them realistic and resigned to the situation BEFORE you plunk down cash rather than after when they’ll be more likely to try running into the arms of the courts calling you everything from a swindler and con artist to a predator and loan shark. NOT a good thing to go through, trust me!

For someone in your position, I’d only work the deal if they agreed upon a realistic exit strategy that keeps you in control of a simplified deal. You might agree to share a portion of the resale profit AFTER the resale. Whatever it takes within reason (and profitability) to keep the deal from turning into a legal quagmire later.

Above all else, sit down with an attorney and discuss the legal risks and get advice on how to avoid or minimize them. It WILL save you money and grief in the long run, I promise you.

Hope this helped

All Success
Keith

7

Re: I’LL TRY MY QUESTION again… - Posted by JD

Posted by JD on July 29, 2001 at 11:04:55:

If the house is really worth $450k (I doubt it) and he doesnt have any other liens, I would lend him $20k (paid via escrow company directly to first lender) in the form of a 2nd Trust Deed in order to bring the first current. Being sure to keep the first current, after he defaults, I would foreclose on him. But you probably dont have the money to do this. Hence, you have no way of making money from this property.

8

Re: I’LL TRY MY QUESTION again… - Posted by Mark-NC

Posted by Mark-NC on July 29, 2001 at 10:48:05:

Redd,
Of course they want to stay in the house, most of them do. Unfortunatley that always brings up the Question. How did the seller get in this position and what makes you think they can pay the Mortgage now if they haven’t been?

Also, in what way is the seller willing to share the equity? I don’t see a pratical solution as to why an investor would want to do this without putting themselves at risk in hopes that this seller pays.

It is not a good practice to even consider doing this. You do not want to be the White Night and come in to save this seller, this would be a very risky situation. This seller has to get real and unless they have a real good explanation or can prove that they can pay, I would say the best way you could help them is to get them out of the house to avoid forclosure on their credit.

I don’t know how much time you have left before it goes to sale but considering it is 8 months into foreclosure is it also 8 months behind in payments?
If that is the case you are probably looking at close to 30,000. to cure this thing with all the late fees attorney fees etc. Not knowing how much time you have it may be a little hard to find someone with that kind of cash for a down payment.

If the numbers are correct there is a posibility you could do something with it. If you have to move it quick you may be able to wholesale it. As far as doing a “subject to” you may be able to pull that off to but like I said you need some serious up front cash to cure it.

Personally that price range house makes me nervous to deal with and the only way I would consider it is with a no risk situation like an option. But that’s just me maybe you are used to those numbers in your area and maybe there are people with serious cash that can put enough down to cure it and put some money in your pocket too. That is something you have to determine and find out for yourself.

Just my thoughts.

Mark

9

Re: I’LL TRY MY QUESTION again… - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on July 29, 2001 at 10:21:50:

There is a basic rule in property management, it is as follows.

“If you do not pay, you can not stay”. Simple as that.
What you are dealing with is what we commonly call a “Deadbeat”. This guy has a $100 a day living habit that he is not paying for. So he wants to stay (what’s new?), we all want something for nothing. He is willing to make his problem your problem. If you were to allow him to “stay” it is almost certain that he would not leave until the sheriff moved him, probably another $10,000 to $15,000 in payments and expenses.

If you do not have the CASH on hand right now to cover all of the costs going in, it would be my suggestion that you go to another ballpark to play (this one is too expensive).

You ask why he does not refinance and the answer is fairly simple. This guy is a deadbeat, he does not pay his bills, he wants you or anyone else to pay his bills for him (and then wants to stay too). Would you loan him any money, knowing his history?

The only other kind of loan that he could get would be something in the “hard money” category. This would most likely be limited to 65% of the value.

You mention “equity” that this seller has. I contend that he does not have any equity, or the amount mentioned. You see equity, at best is an opinion. It takes a sale, a buyer to prove equity, also any equity amount that is stated is just a guess at best. Remember that if this guy will not pay his mortgage payment, he probably won’t pay anybody else either. You will most likely be faced with some leins. Judgements of another kind, back taxes, water bills, late fees, and the list goes on and on (of course he wants to stay).

If you are in fact rich going in and can stand to lose $35K to $50K just to help this deadbeat continue his lifestyle, then go ahead. Step right up to the plate. If not (rich), then go to a another ballpark to play the game.

10

Re: Follow up! Is it still worth it? - Posted by Bud Branstetter

Posted by Bud Branstetter on July 30, 2001 at 22:25:52:

You need to check your laws on homesteads. In some states it is more cumberson even to consider it. If I were doing it I would only use a Pactrust to do it. Mainly for the bankruptcy protection. He could remain there as a tenant. You would get a FMV now less any repair costs to come up with a mutually agreed value that you would buy in.

The question becomes the cost and how long before he can pay it back. Gatten and the folks are approaching preforclosures and I haven’t hear negative experience when properly done.

11

Re: Follow up! Is it still worth it? - Posted by Steve-Atl

Posted by Steve-Atl on July 30, 2001 at 11:43:37:

If this is his personal home and he lives there, why would he let an attorney “manage” it? After all, there are no “tenants”.

The story sounds very fishy to me. I’ve learned thru hard experience that these people will lie to you.

I’d pass. There are much less risky deals than this.

12

Re: Follow up! Is it still worth it? - Posted by JohnBoy

Posted by JohnBoy on July 30, 2001 at 11:00:52:

I would only consider working something out if he MOVES OUT!

Allowing him to stay can cause you a lot of problems. Are YOU willing to bring his payments current so he can stay?? Then run the risk of losing all your money plus any potential profits?

Even IF I were to consider letting him stay in the property, the ONLY way I would even consider it is if he deeded the property to me and leased it back as a tenant. You could offer him a percentage of what ever equity you get from the property when it sells. Which creates another problem. If he’s living in it, then how are you going to sell it when he doesn’t want to move out??? How would you ever get your money back out?

Here’s his choices. Sit there and lose the house to foreclosure OR move out and let you help him save half of what ever equity you can get out of it by bringing his payments current a getting the thing SOLD for him!

NEVER, NEVER, NEVER try to force a deal just because you can get it somehow! ALWAYS, ALWAYS, ALWAYS make the deal fit your needs that best protect YOU! This is NOT YOUR PROBLEM! It’s HIS! DON’T let his problem become YOUR PROBLEM!!!

There are THOUSANDS of houses out there that you have to choose from! He has only this ONE house that HE NEEDS TO SELL!

If they don’t play by YOUR RULES…NEXT!!!