Not sure which way to go - Posted by Lisa

Posted by Lisa on February 03, 2004 at 21:36:38:

Thank you very much for your feedback.

Not sure which way to go - Posted by Lisa

Posted by Lisa on January 30, 2004 at 21:36:16:

I hope no one if upset by the length of this post but I think you need the history to give me the feedback I need. My question is, how would you handle it? Thank you very much for any feedback. Below is a recap of conversations I have had with a seller - It is all the seller talk ing unless noted.

There is a mortgage on it of about $88,500. I am currently asking on the open market only $125,000. As I am sure you know, I can’t sell without paying off the first mortgage. It is assumable at 7.25%.
So, if you wanted to assume the payments at 634.21 PI, I would consider taking a second mortgage for $36,500. (Details to be worked out later). However, this house appraised for $131,000 in 8/99 so I am selling it for less than I should. My wife is on Disability and we are seriously considering moving back to our home. Another consideration for you and us would be that if you bought the house, I would lease it back from you for a year and pay you up front for that year at a reasonable rental rate. You have to have a positive cash flow and that would help you put money into another investment property and we could stay here (we love the house) and maybe I could find a job, which I have been seeking for almost a year!! At least we would have some cash to live on during that period of time.

As far as the current statistics go, we are current on the mortgage. I pay the Homeowners insurance separately and the property taxes myself. In fact, they were just paid 1/14/04. Our tax was only $317 due to the homestead exemption and the disability exemption. Normally, they would be about $525 with the homestead exemption and not disability exemption. This is based on a tax value of $24,400 for the land and $86,300 for the house.
Total tax appraised value (I don’t know when this was) is $110,700. I was asking $125,000 for the house with the appliances and outdoor jacuzzi (cost of $6500). The house appraised at $131,000 in 8/99. The loan is assumable at 7.25% with the payment at $634.21.

I just received an e-mail from A Real Estate Agent. I am thinking about listing the house, but would like to talk to you first. If you have any idea of your suggestions, let me know before I commit to a listing. Anyway, this week I am going to look at a few locations to possibly activate my Real Estate Salesman license, so that would change everything if I hang it with a broker. Things are up in the air now, but I need to sell ASAP to get away from any liens or creditors judgements against the house. I had thought about filing bankruptcy, but an attorney told me that some of the Credit Card companies could file a judgment against the house and take all my equity. These are all unsecured creditors. Can they do that? If that happens, I am up the creek without a paddle. Talk to you soon.

I know what the credit card companies can do if I file bankruptcy. They can go in and file judgements and get their money if they are agressive and large enough accounts. I only have one or two that I think would do that. I wanted to sell the house outright and then contact the credit card companies and offer to make a settlement. My credit is shot now anyway, so I won’t be able to get another home loan before I die! I just don’t know what they can do if we don’t sell the house and stay here. I need to talk to another attorney to find out what they can do since there is a mortgage on the house and my wife is on SS Disability. I don’t think they can seize it from us like IRS can do on a Federal Tax Lien.

BUYER - There some options I am considering based on the numbers you have provided me. Let me know your thoughts. Option #1 -Sell it to me for $125,000-I assume existing mortgage or pay it off. Either way your name is off the mortgage and deed. I will pay your $5,000 cash now and the balance $31,500 when I resell the house. I have 72 months to buy it. Obviously I would try to sell it as quickly as possible… Option #2-Sell it to me for $108,000 cash Option #3-Sell it to me for $125,000 via Lease Option. (Your name remains on everything until I purchase it.) I pay you $800/month. $50/month goes toward the purchase. I have 72 months to buy it. I maintain the home, all repairs… Let me know if any of these options sound good to you.

We need to move back home to be near my wife’s family so I can find a job. I can’t leave her home now with her physical condition. So basically, we need to sell and get a price of around $125,000. Two Realtors told me that I should not sell it for less than $138,000 (asking price anyway) because it is only 7 years old and is solid concrete. I think the appearance gives people the wrong impression of the “synthetic stucco”, but I can show you a cut out of how the exterior is constructed. The appraiser said it was superior to the vinly sided houses, course I knew that. That is why I didn’t want vinly.

Give me a call if you can come up with some suggestions. I may have to put it on the market with a Realtor if the creditors can file liens and foreclose on my equity or take over the first mortgage and sell it themselves. If they can’t then we will either rent it or do a lease/option purchase. I don’t know yet. Let me hear from you. You are the investor and now you have the facts. If you want to gain instant equity, invest in an appraisal of my house and see how much it is worth and how much you could borrow and then you can do whatever you want with the property.

Option #2 is definitely out. Option #1 is too long (6 years) and $5,000 down with no provision for interest on the balance or no monthly payments is not so good. You may not be able to sell it to make a large enough profit as you want in 6 years. And with Option #3, I did not want to have my name on the deed because of the creditors.

BUYER - What did you have in mind for interest on the balance. I am not sure what your plan is with the creditors - if you have a steady flow of income from holding a mortgage on the house that could be an issue? 6 years was a starting point. What do you think is reasonable? My goal is to make it a win/win situation. I am trying to look at the whole picture.

I have even talked with two Realtors who said the house, if listed, should be listed at $134,900. That would bring me a little over $125,000. My problem is that I don’t know how much time I have before the credit card companies start to file their liens and if they can enforce them, since Sally is on SS Disability and I am actually unemployed. I will be self-employed starting this week, but so far the money has been going out for software, supplies, etc., and will take a while to recoup before I start to make a profit. I also have my Real Estate Salesman license credits up to date now, so I may start to work with someone in NC. Who knows?

Anyway, give me a call. I forgot where we left off on your options. I know #2 was out and # 3 would leave me holding the mortgage in my name, so that would not be good with the creditors, or I should say would not be good for me, but good for them. If there was some way for you to purchase it by assuming the loan and giving me say, $10,000 and letting me rent the house for 6 months at $800.00, and handling the balance of appx.$26,500 without having to record the sale at $125,000, then we could both come out ahead and I would be able to have some peace of mind, do my taxes, relax and look for a place to rent in NC, it would be great. But, the problem lies in that difference amount of whatever we arrived at and the time frame. Try to figure something out that is workable for both of us.

Re: Not sure which way to go - Posted by B.L.Renfrow

Posted by B.L.Renfrow on January 31, 2004 at 09:29:07:

Well, this sounds like a classic case of a seller who SHOULD be begging you to take his house, but instead is rambling on about Realtors, becoming an agent, wanting this and wanting that. Meanwhile, he apparently is unemployed, has no income and has creditors circling the gate.

If you have cash reserves, this would be an ideal subject-to deal. If properly set up, using a land trust, that would get the property out of his name and avoid the risk of creditor attachment. Of course, the loan would remain in his name, but it wouldn’t matter because you would be making the payments and his creditors couldn’t attach the property. However, this IS NOT a reasonable option if you have no money, or quick access to money for making the payments until the house is rented or sold, holding and repair costs, etc.

Also, if the seller is asking $125k and that is such a good value, why hasn’t it sold? You need to check comps and get a better handle on the actual FMV. I suspect it may be closer to the tax assessment than the appraisal amount mentioned by the seller. Once you get a better idea of the actual value, that will narrow down your options.

This seller apparently is having trouble affording the payments now, yet he wants to remain in the property. Again, a typical request, and one that’s almost always a bad idea. If you do come up with something that works for the both of you, the seller needs to find a place he can more comfortably afford. Otherwise, it’s very likely he won’t be able to keep up the payments to you, then you’ll have all kinds of issues trying to get him out.

Also, you should not consider lease optioning from someone in financial distress. The risk of liens and judgments attaching is significant. If the seller is going to file bankruptcy, I’d rather have the deed than simply be a tenant.

By the way, are you actually talking with this guy, or is this all via e-mail? The best way to find a solution that works is to get face to face with the seller and simply figure out what you can do to solve his problem and make some money. This is pretty tough to do via e-mail. If you are nearby, go meet with him in person.

Finally, many, if not most, sellers in financial distress are not realistic. They will hold out for full market value as the sheriff is posting the eviction notice on the door. If you can get on the same page with this seller and help him figure out that the alternatives are all bad if he doesn’t do something right away, you might have something here.

Brian (NY)

Re: Not sure which way to go - Posted by whyK

Posted by whyK on January 31, 2004 at 18:51:57:

Hi Brian,

Can one have the seller put the property in land trust with lease option to avoid the liens and judgements attaching to this property while leasing?



Re: Not sure which way to go - Posted by B.L.Renfrow

Posted by B.L.Renfrow on January 31, 2004 at 21:49:10:

Sure, but if they are willing to do that, it’s not much of a step from there to deeding the property to a trust controlled by you, which is the essence of a subject-to deal. And there would still need to be a third party trustee, since it wouldn’t make sense for the seller to remain in the chain of title as trustee. If a seller is willing to go that far, it shouldn’t be too tough to move him along to subject-to.

Also, that wouldn’t resolve the bankruptcy issues, nor would it get the seller completely out of the picture. Having to depend on a seller showing up down the road – perhaps several years later – at a closing is always risky.

My thinking nowadays is that lease optioning from a seller just doesn’t give me the level of control I need in a deal. While the trust would mitigate some of the risks, I don’t think it’s enough if the seller still retains beneficial interest.

Brian (NY)

Re: Not sure which way to go - Posted by whyK

Posted by whyK on February 01, 2004 at 01:17:21:

Hi Brain.

Could you explain me what will happen if the seller files bunkruptcy before buyer exercising the option in L/O deal?

And for the deeding issue, you could have seller deed the property and put it in the escrow with instruction for the future, couldn’t you? But maybe getting the deed makes more sense…

Thank you very much.


Re: Not sure which way to go - Posted by B.L.Renfrow

Posted by B.L.Renfrow on February 01, 2004 at 10:29:32:

With bankruptcy, it’s just a matter of how secure the investor’s position is.

If I own the property and the previous owner files BK, so long as the sale was an “arm’s length transaction” and there’s not a huge amount of equity, the trustee likely is’t going to be too interested in the property. I own the house, period. I can do whatever I want with it.

If I am only lease optioning, I think my position is more tenuous. If there is any equity in excess of the debtor’s state-allowed exemption, I suspect the trustee would look at it more closely if the debtor still owned the property. Plus, the trustee could require payment of rents to him, which would further complicate the issue.

Honestly, I’m not sure how likely any of the above scenarios are, but I just think getting the deed makes more sense. I was involved in a case once – in fact, it was one of the first deals I ever did – where I had lease optioned a property, and without my even knowing until after the fact, the seller filed BK and immediately deeded the property over to the lender, all in the same day!

Of course, a trust would have prevented that, but at the time I didn’t know any better. And I could have challenged the seller’s action in court, but ultimately it wasn’t worth it.

As for putting the deed and instructions in escrow, yes, that would help, but again, it’s just a matter of control vs. risk.

Brian (NY)