No Hope in No Equity PreForeclosures? - Posted by Heidi W

import · March 30, 2002, 6:39pm

Posted by Randy_OH on March 30, 2002 at 22:16:59:

Dan,
Quick question: in what section of the paper do you run your ad? Houses for sale? Doesn’t seem to make sense, but I can’t think of any other section to use.
Thanks,
Randy

import · March 30, 2002, 6:39pm

Posted by Heidi W on March 30, 2002 at 19:39:57:

Hi Gang,

I’ve been researching doing deals with pre-foreclosures recently and I thought the consensus was, “there’s no point in pursuing NoEquity PreForeclosure deals,” and that all the money was in the BigEquity Rehab projects.

Having come from the LeaseOption training, I thought it was sad “to say the least” that NoEquity PreForeclosures were not help-able. (talk about a potentially motivated seller!)

Then I read this post and my jaw practically dropped?

http://www.creonline.com/wwwboard/messages/arc_2001/arc_23/23839.html

In her letter - there is a promise of hope even if there is no equity.

Can anyone explain how this works? Do you pay off their past due amount and get the house ‘subject to’ and then hope you can sell it for a profit? Or what???

Thanks,
Heidi W (CA)
(still plodding along looking for my first deal…sniff)

import · March 31, 2002, 6:48am

Re: No Hope in No Equity PreForeclosures? - Posted by Craig (IL)

Posted by Craig (IL) on March 31, 2002 at 07:48:39:

George Achenbach in hsi book, “Goldmining in Foreclosres Properties” discusses this situation.

When there is 2nd & 3rd liens, mechanical liens etc., and when the lender of the first mortgage is foreclosing, the holders of those notes may be in danger of losing their entire note amount. (It would depend on how much the property may get at auction.) In these situations there’s chance of talking with the these note holders and buying these notes at pennies on the dollar. Reducing amounts owed on the property in this way may give the investor attrractive equity.

Furthermore, if the current property owner is filing for bankruptcy, the foreclosure process will be slowed consderably, and this should put the investor in a better bargaining postion with all lien holders.

Gather all details about the property, incliding needed repair costs; get sufficient data about the current property owners’ financial state (you’d have to enlist the current owners’ help in doing this) and huddle with the lenders. Often, the current owners had tried unsuccerssfully to sell the property for enough to cover his/her needs; if so, include that at $X for Y months the property didn’t sell in your presentation.

import · March 30, 2002, 9:24pm

Short sale - Posted by Rob FL

Posted by Rob FL on March 30, 2002 at 22:24:38:

I’ve had the seller agree to try for a short sale when there is no equity. The lienholders (1st mortgage, 2nd, etc.) allow their loan to be discounted. Example:

I bought one not to long ago. First mortgage with back payments, interest, fees, etc. is $77,000. After about $5000 in repairs the property will be worth $85,000. Meaning basically that there is no equity once closing costs are all paid. I get the bank to agree to accept $50,500. The bank agrees, the foreclosure is stopped, and we close. I flip it to a rehabber for $55,000.

All of the sudden a no equity foreclosure = lots of profit.

import · March 30, 2002, 8:14pm

Re: No Hope in No Equity PreForeclosures? - Posted by Dan O’Connor

Posted by Dan O’Connor on March 30, 2002 at 21:14:12:

Heidi,
If the seller has a good loan(low int. rate - low payment) and is behind on payments then you can make up the back payments,take ‘subject to’ and sell on a wraparound mortgage or L/O.If you sell on a wrap,you are offering owner financing and can charge a premium by raising the interest rate and making monthly cashflow on the spread as well as inflating the purchase price by about 10% above FMV.
Example:
You find a seller(better yet,seller finds you)who has a house worth $100,000 and owes 99,000 who is a couple mos behind with a 6.5% loan.You agree to make up the back payments if they’ll deed you the property,saving their credit rating by avoiding foreclosure and allowing them to move on.You then find a buyer who has cash for a down payment but bad or no credit and offer to sell for 110,000 at 9.5% using a wrap(or if they have little cash,consider a L/O).You make cash on the frontend by the downpayment,and monthly cashflow on the interest rate spread.If you tweek the numbers around, you can often make cash on the backend when you sell.Most buyers want to know 2 things - how much down and how much a month?
Where do you find this type of motivated seller?Run an ad in your local paper.Something like:WE’LL BUY YOUR HOUSE IN 72 HRS - EVEN IF YOU HAVE NO EQUITY.
It’s IMPORTANT that you have a cash reserve in this type of deal.
You can also try direct marketing.The seller doesn’t have to be behind in payments to agree to this.They may have numerous other reasons for wanting to move but not many options.This is an excellent opportunity for you to help them while making a nice profit.
I hope this is of some help to you.Keep reading the archives!

DanO

P.S.- Tried to e-mail this to you earlier.Bogus address???

import · March 31, 2002, 8:36am

Re: No Hope in No Equity PreForeclosures? - Posted by Heidi W

Posted by Heidi W on March 31, 2002 at 09:36:16:

Thanks Dan,

Can you clarify what you mean by…

“It’s IMPORTANT that you have a cash reserve in this type of deal.”

Are you talking about …

Need cash to make up their payments + whatever they need for moving money + cosmetic fixup prior to resale on wrap around/lease option + misc… or something else?

Thanks,
Heidi W

P.S. - if I don’t have the cash - is there any point in persuing these… i.e. would I have any luck using OPM for this?

import · March 30, 2002, 9:18pm

try it without the NOSPAM part - Posted by tang-0-rang

Posted by tang-0-rang on March 30, 2002 at 22:18:40:

If you notice…in her E-mail address it says NO SPAM, this is to keep the E-mail theives from sending her junk mail. just remove the NO SPAM and try again
Todd Williamson (CO)