Looking back, how should it have been done? - Posted by Augie (So. CA)

Posted by Lynn on October 31, 2000 at 06:57:18:

Sometimes it can be very tough to get positive cash flow when there is a high interest rate first, especially when it is combined with a second mortgage, and compounded when the seller is $15K behind.

One option would’ve been for you to get a straight option to purchase. He owed around $271K with back payments and taxes, and he was willing to walk, so you could’ve gotten an option to purchase the property for $271K and advertised the home as “Desperate Seller, must sell FAST $320K home for only $290K” If you found a buyer you would pocket the difference between what you sold it for and your option price, in this case$19,000.

Although we don’t like to have personal liability on loans, another option would’ve been for you to buy the property yourself with traditional financing and then resell it for either cash or terms. The financing costs would eat up some of your profit, but give you more time to do something.

This is just a couple of ideas, I’m sure someone will post a few more.

Happy Investing!

Looking back, how should it have been done? - Posted by Augie (So. CA)

Posted by Augie (So. CA) on October 31, 2000 at 24:57:25:

Hi all,

Two years ago, I had a motivated seller (a friend) who was facing foreclosure. He owed $229k on the first (ARM) and $27k on the second (fixed 8%). The comps at the time came at $320. He was willing to deed me the house if I gave him some cash (we didn’t get as far as how much). We calculated that he was $15k behind on the first and taxes.

The problem was this: He didn’t have good credit when he bought the house. He got a lender which uses the LIBOR index with a margin of SIX points! I guess he was seen as a high-risk borrower from a previous BK. I guess the lender was right because less than a year after he bought the house, he quit making payments as he couldn’t afford them any longer. If I took his loan “subject to”, I would’ve been stuck with a 13+ percent loan when the going rate at the time was only around 9%. How should have I structured the deal? It was suggested to me (without the suggester knowing the numbers) that I could put this in a Land Trust to get around the DOS clause.

He ended up taking the first offer which came his way. It was sold at $280k while the comps were at $320k. Someone got a great deal. I wish it would’ve been me. So, I’m asking the pros here, how should I have done the deal? I appreciate your input.

Augie (So. CA)