Lease/Option House Gone Into Default?(Long) - Posted by PatrickMD

Posted by B.L.Renfrow on December 05, 2000 at 21:04:30:

As you have surmised, appraisals generally aren’t worth more than the paper they’re written on. ESPECIALLY re-fi appraisals have a way of being significantly higher than the actual market value.

Ultimately, a property is worth whatever a buyer and seller agree it’s worth. But if a lender will be entering the picture down the road, it will be necessary to either have comps supporting a sale price or have a plan for dealing with the difference between the FMV and the sale price.

You’re correct about another thing: those numbers ARE big. How many of those $2931 payments could you make before your bank account was in the negative numbers? Holding costs could eat any profit in no time on this deal.

Plus, I’d NEVER lease-option a home from someone in default, certainly not someone THAT far in default. The chances are too great of them being in trouble financially across the board, and before you know it, there are all kinds of liens and judgments attaching to “your” property and then you couldn’t buy it even if you wanted to.

Even if the FMV is in the high end of your neighborhood comps ($350k), there’s no deal there, with a $348k loan balance, which may or may not include the $12k in arrears, plus the attorney fees and other fees the lender will have added on.

The one thing I might try on this sort of deal would be to take an option to purchase for the balance due the lender. Then, I’d market the heck out of it for a couple weeks, at, say $400k and see what happened.

Even in a high-end area, there aren’t going to be many buyers walking around with a $42,500 down payment. If they have that kind of money, they’re probably just going to get a conventional mortgage loan.

Don’t think I’d spend a whole lot of time on this one. There have to be better deals out there.

Brian (NY)

Lease/Option House Gone Into Default?(Long) - Posted by PatrickMD

Posted by PatrickMD on December 05, 2000 at 18:00:37:

Hi, Everyone & Happy Holidays! Have a catch on the line and want to check with you to see if we can reel him in. The house is a 3400 sq. ft. 4 br/2.5 ba high country contemporary stone & board ranch house on 1.5 acres in a beautiful neighborhood. The sellers were notified they went into technical default 12/1/00 with 4 months back payments owed at $2931/month. They say the balance owed is $348,500. at 9.14% with a 5 year balloon on a house appraised at $410,000. I also ran comps and discovered the house was bought in '97 for $284,000. The neighbor’s across the road was built at the same time for $155,000. The other neighbors look like they could easily be in the $250,000-$350,000. range. They bought on a lease option and refinanced to bring a first and a second into a first. The appraisal doesn’t seem realistic. And of course, I’ve got to find a tenant/buyer who can go the distance. My questions are:
How could there be such a large gap between the '97 purchase price and the appraisal?
Can you Lease/Option a house gone into default with $12,000. in back payments? I know the bank would have to be brought current; Is it too late? Will they now want 100% payback?
Would you structure it so it would look like this?
L/O price $360,500. Deposit 0.
Monthly $2931.
L/P price $425,000. Deposit $25,000. Down Pmnt.$42,500. Monthly $3031.
Balance owed at closing $425,000.-($25,000.+$42,500.)=$357,500 It seems like at whole lot of money!
Is there something fishy going on here?
Thanks in advance. Pat.

Re: Lease/Option House Gone Into Default?(Long) - Posted by Tim V.

Posted by Tim V. on December 06, 2000 at 03:30:15:

Here is a suggestion I have posted before but have never gotten any real feedback on from the more knowledgeable types on the board- FEEDBACK PLEASE!
I agree with previous post that this would be a property to let slide usually (I would). However, what if a person were to get a contract for sale (with or without VTBs and such) or an option for purchase; basically anything that will tie up the property for a couple of weeks.(I like the option better on this one- don’t want to tie the owner down when he is already in trouble) Then go out and advertise. You will either find a buyer who can do the deed or not. At worst you are out advertising costs- $100 or so? Whopee. Make that make a 100 times on one deal that does work. Just a thought.
Good luck!
Tim V.