Will this work/would you do this deal? - Posted by Alan-Baltimore

Posted by Ronald * Starr(in No CA) on June 24, 2002 at 12:39:12:

BMP----------------

I don’t think so. However, One would take over the property subject to the first mortgage. Thus, one would be responsible for paying on it. When a junior loan forecloses, the senior lender stays in place, at least in most states. It may be that in a judicial sale state that the foreclosure sale requires that the opening bid be high enough to pay off both the senior lien and the foreclosing junior one. In which case, the answer to your question would be “Yes, if you are the successful bidder at the foreclosure sale.” With the figures you mention for this property, it is unlikely that somebody else would be bid on at a foreclosure sale where the bid was the first and second lien amounts combined.

Every state has different foreclosure sales. When you talk about a foreclosure, it is always good practice to include the state.

Good Investing*************Ron Starr*****************

Will this work/would you do this deal? - Posted by Alan-Baltimore

Posted by Alan-Baltimore on June 23, 2002 at 11:15:46:

I looked at house Friday owned by a woman who is 4 months behind in payments with July 5 deadline before the bank starts the foreclosure process. The house is in perfect move-in condition in quiet neighborhood. I know I can put someone in there within 2 weeks.

The deal is kind of skinny but could be worth about $12K altogether. Here are the numbers:

Balance of mortgage: $68,000
Past due payments and late fees: $2,915
July (regular) payment: $710
Total owed: $71,625

I am thinking of loaning the owner the $3,625 for the back payments as a second mortgage on the house. The note would be a 3 year balloon with interest only payments at 12% ($36.25 per month). In return I would “get the deed” subject to current mortgage.

I would then L/O to a tenant/buyer and get upfront money equal to (or greater than) my loan of $3,625. The option price would be $82,500 (this is a little high for the area but there are few recent sales since the neighborhood has a strong base of long term home owners). Monthly rent would be $825.

Final numbers to me after one year are:
I break even on my loan versus the option/upfront cash.
Cash flow of $115 from rent + interest of $36.25 = $151.25 x 12 = $1,815
Back-end profit (I’ll have tenant/buyer pay all closing costs) = $82,500 (option price)

  • $68,000 (mortgage after arrearages are paid)
  • $3,625 (t/b option money)
    So my bottom line profit is $12,690 (give or take the final 1st mortgage payoff). Of course if the t/b takes more than a year to buy the house, my profits are higher.

I have two questions:

Does making the loan as a second mortgage make sense (has anyone else done this)?

Would you do this deal?

Thanks for the input.

Re: Will this work/would you do this deal? - Posted by Kristine-CA

Posted by Kristine-CA on June 24, 2002 at 24:30:10:

My understanding of how you “get the deed” in this case would be be to buy the property for the remaining mortgage balance, subject to the existing financing, with you agreeing to pay the lender the back payments to keep the loan current. No need to lend the seller money…

He walks with no money, but a mortage that continues to be paid. You walk away with property that is deeded into a trust naming you as the beneficiary, for the cost of the back payments. The bank/lender knows nothing. You continue to make the payments until your t/b gets financing to buy you out.

Just my opinions here. Sincerely, Kristine

Re: Will this work/would you do this deal? - Posted by Ronald * Starr(in no CA)

Posted by Ronald * Starr(in no CA) on June 23, 2002 at 13:54:07:

Alan–(MD)----------------

I worry that you are not knowledgeable enough to be attempting to buy a property, especially one heading for foreclosure.

Your questions show a lack of understanding of how real estate and loans work. You talk about getting a deed and having a second loan. This is contradictory. You could buy the property from the owner, getting a deed and taking the property subject to the first loan. Then, when you have the deed, you pay the back loan amount. You give the owner whatever you agree to for the owner to walk away.

But be sure that you have a clear picture of the lien situation on the property and the owner. And make sure that you do this in a way that minimizes the chances of the lender calling the loan due on sale. This suggests that the owner deeds into a living trust which is recorded and then assigns the beneficial interest in the living trust to you, which is not recorded, and thus not seen by the lender. I suggest that you read up on the techniques of doing “subject to” or “sj to” by doing a search on the archives of this main bulletinboard forum of CREONLINE.COM .

Another option would be to loan the owner the money to make the loan current. And record a second loan against the property, as you mention. Then, the owner defaults on either loan you could start foreclosure on your loan and attempt to get the property that way. This is called the “back door” approach by Bob Bruss, nationally syndicated real estate newspaper columnist. It is usually only done when there is more equity than shows here and when the owner does not want to sell. Joe Kaiser’s version of this is called the “helping hand,” I believe. Again, when there is more equity.

It sounds to me as though the rent could about carry the property if you just did an ordinary rental, rather than doing a lease option. Then, if you wanted to do so, you could have a long-term investment property, with the renter paying for your property.

Good InvestingRon Starr******

Re: Will this work/would you do this deal? - Posted by Craig (IL)

Posted by Craig (IL) on June 23, 2002 at 11:55:03:

Cna you get teh loan secured by anyting else the current owner has. Its makes no sense, I think, for you to put a lien on a properity that you own! Try to get a loan secuered by the fella’s car or something. Failing that, take it as an unsecured loan; you may get nothing from him, but, then again, you may.

Also, I hope you know the rents in your area.

Re: Will this work/would you do this deal? - Posted by Brian M. Powers(MI)

Posted by Brian M. Powers(MI) on June 23, 2002 at 16:43:17:

Ron:
Given the scenario in which the investor loans the owner the money to catch up the payments, getting a second mortgage on the property.
If the seller did indeed stop paying the $36/month and the investor with the 2nd mortgage foreclosed, would the investor have to pay off the underlying 1st mortgage in order to get title?
Thanks…BMP