Overencumbered Pre-foreclosures - Posted by Dave - FL

Posted by Travis (Dallas) on December 29, 2001 at 14:12:41:

I would think that the seller’s credit must have been really bad for such a high interest rate in 1999.
The mortgage company may do a short sale where you could buy it from them at a lower price. You would probably need to get new financing or pay cash. Unless this house is really special or you want to live in it, I’d pass.
Unless…Does the owner have any other assets? Lake lots, boats, guns, antiques, diamond rings, horses, motorcyles, cars? Or, do they have a relative left that will lend them some money or sign a note?
Will the house cash flow as a rental with the current mortgage, if you bought it “Subj.-to”?
Good luck.

Overencumbered Pre-foreclosures - Posted by Dave - FL

Posted by Dave - FL on December 29, 2001 at 10:46:21:

I’m looking for suggestions on how to handle the multitude of pre-foreclosures I have in my area that are overencumbered with debt. I’m aware of strategies to get short sales from the lenders, but many times lenders are unwilling to budge. To give an example, I am currently in contact with an owner who owes $108,000 financed at 11.5% on a 2100 sq.ft. 3 bedroom 2 bath house build in 1999. The house was appraised this month at $109,000. The owner is behind by five payments of $1081 each not including taxes and insurance. Tax assessor places the value at $89,170 in 2000 and $94,930 in 2001. Current taxes are $1808 and insurance is at $550/yr. Does anyone have a suggestion for a strategy to bail the owner out yet make it worth the time and effort? Owner is currently unemployed so refinancing is not possible. Deeding the property back to the lender is the only short sighted strategy I have. Any suggestions??

Normally… - Posted by David Alexander

Posted by David Alexander on December 29, 2001 at 20:54:10:

if the interest rate were say 6 - 7%, I might say there is a way… Actually there is… Assign it… more on that at the bottom of the post.

You can work with the lender to make extra payments until the arrearage is caught up… (maybe $500 extra a month or something) get a note from the seller to cover the arrearage, with payments of $250 a month or so. Get a buyer with a downpayment and your cashflow of say $200 - 300 a month and that will cover the extra payments, plus leave the down in reserve to cover the negative if there is one it, (it should be small and short term).

After a few months, approx 12 in the case of this deal, you should still have cashflow coming from the seller and will be cashflowing positive $500 a month short term for your troubles.

Normally that would be done on a wrap…

In this case… with such a high interest rate, only do the deal if you find a buyer… Get a Release of liabilty once you sell to a new owner… disclose, disclose, disclose… (note, I have never assigned a deal and walked away)

You would do as above except the note from the seller would need to be secured or ahve a cosigner etc…

You would also just a get a small downpayment of cash and a note from the buyer.

You get the monies in each month and pay the extra you’ve negotiated with the mortgage company… while the new buyer makes the payment… In 12 months you should be able to keep the downpayment and start putting some cashflow in your pocket.

This has been more for excercise and to get your thought processes at least for me, as I would probably just go on to the next deal…

Easier to find a better deal than to lin up the stars and hope it all plays out right. If the interest rate were lower I’d probably take the chance… but not as it sits.

David Alexander

Re: Overencumbered Pre-foreclosures - Posted by Brent_IL

Posted by Brent_IL on December 29, 2001 at 20:14:46:

One traditional approach to handling properties that are slightly over encumbered is to sell with owner financing after buying subject-to, or taking over an assignment of beneficial interest in an equity-holding Illinois-type trust assigning a full Beneficiary Interest to the new buyer, with the agreement that the property will be leased to the co-beneficiary on a Triple-Net basis for some specified period of time (didn’t want to evoke the P-word).

Around here a 10% mark-up for seller-financing is a given, but you have to work for more. With a 10% increase in price, and a 1% of sale value payment, your new buyer’s payment to you is ~$1,200/month. You need to decide if the difference of $119 each month is the kind of return that you want on the cash you are using to bring the loan up to date. Any money in excess of closing costs that is received from your buyer can reduce the acquisition costs of the project.

Re: Overencumbered Pre-foreclosures - Posted by Rob FL

Posted by Rob FL on December 29, 2001 at 18:01:35:

  1. Try for a short sale.

  2. Try cathcing up the payments and buying subject to the mortgage.

  3. Skip it and move on to something that can actually work as a deal. Most of these foreclosures with no equity and thousands of dollars in arrears are simply hopeless cases.