No, No, No… - Posted by Don (VA)
Posted by Don (VA) on November 15, 2006 at 19:26:28:
Let’s assume they default on their lease. (Though frankly they don’t even have to.) You attempt to evict them for non-payment of rent. They take you to court. Their lawyer has them on the stand.
Seller: So this guy came to me and said he had a way to save my house.
Lawyer: What did he tell you?
Seller: He said that I should start making my payments to him and he’d save my house?
Lawyer: What happened then?
Seller: Well, first, the payment went up $200 a month. We weren’t even able to keep up with $1,300, because of our daughter’s illness. We thought the payments would drop to let us catch up. But instead he raised them.
Lawyer: Is that all?
Seller: We thought this was some sort of refinancing or debt reduction plan. Then we found out that somehow he owned the house. We were conned into giving him the house; we didn’t even own it anymore.
Lawyer: Is that all?
Seller: No. Then we found out that if we wanted our house back…our OWN house…the one that our monthly payments had been raised on…that we’d have to pay him $20,000 and all sorts of extra expenses. Remember, we had run out of money and were having trouble paying $1,300 a month. He jacked the payments up to $1,500 and now he expected us to come up with an ADDITIONAL $20,000. Where did he expect us to get THAT from?
Lawyer: So what happened?
Seller: Well, we couldn’t make those higher payments. When we told him that, he tried to evict us from our own house. Said we could buy back our own house for $20,000. That just doesn’t seem fair.
Ron, that’s happening all the time across the country. The sellers “forget” they deeded the property over. Plus, realistically, they often can’t afford higher payments, when lower payments led to a preforeclosure situation. And, really, where do you expect them to come up with $20,000? That’s a lot of money for even these employed people to come up with. And, on top of all that, if they have an option on the property, then they have equitable interest and you wouldn’t be able to evict in any case. With equitable interest, even just an option, you might have to foreclose.
It’s always dangerous to leave the people in their own property. It’s doubly dangerous to raise their monthly payments–it looks horrible when it goes to court. Some gurus do have strategies for preforeclosure bailouts leaving the owner in the property, but they’re very detailed in what you have to do…and even then it’s chancy.
Best thing to do is to buy the house from them and have them move on…if there’s enough money in the deal for you. And I’d even question your numbers: Not many houses that appraised at the top of the market a year and a half ago have gone up in value. And why was it appraised? If it was something to benefit the owner (a HELOC, for instance), the appraisal may not have been sufficiently conservative. I’ve seen appraisals done during the summer of 2005…and there was no way the house was worth that even then. Most things I’m looking at today that appraised at, say, $550,000 in June of 2005 aren’t selling now for $475,000…or things that actually sold then for $280,000 are on the market now (and not selling) for $219,000. Those are real examples.
Be very, very careful.