RE: “Now what do you do with it? You listen to the experts on this board on how bring the totality of the deal to fruition. (Did I write that?)”
Thanks Rosie for the wonderful information. But since you took me this far I am asking everyone out their who would know…for input on what to do from here??? Say that I have bought the note from the bank on a preforeclosure…In your example, I paid the bank $30,000 for the note for the $60,000 loan. Please don’t stop here…I obviously have more work to do but I don’t know what that is or how to go about it. Please fill me in with the rest of this transaction. Thanks everyone! Carolyn
We’ve been working with a home owner via phone who responded to our “we buy houses ad” . She has a $110,000 mortage bal. on a home with a market value of $150,000. She’s 4 months behind in her payments and forclosure preceedings started yesterday. She also filed chapter 13 2 yrs ago.She needs $12,500 to mve to a townhouse and wants $7,500 cash .She could probally sell it tomorrow if she droped her price to $130,000. But dont think she thought of that and I’am not gonna suggest it.
It is listed with a realtor since feb.2. She contacted them to she if they’ll let her out which they would. Also called a numbered of places to see what her chances of 2nd or refi
were. Everyone said no way. Is there any way to save this one. There’s $20,000 in equtiy to be made here. Or am I spinning my wheels. Please help!
I would want to ask myself: If the Realtor can’t sell the house for whatever it’s listed for, what will I do differenly in order to sell it quickly? And don’t kid yourself into thinking they just haven’t thought about dropping the price. I guarantee you, they have.
I think Sue provides the details on what you have to consider, but basically, if you pay $130k hoping to get $150k, you might be in for some rough financial sledding.
Ok, first of all she doesn’t need $12,500 to buy a townhouse. Tell her YOU’LL buy the townhouse and she can lease-purchase it from you. What she needs is the $110,000 to satisfy the mortgage and the $7,500 cash.
Next find out who the is the lender and approach them. The mortgage is in foreclosure, so they should be willing to sell that mortgage at a discount. Offer them 85 cents on the dollar.
Whatever price they will agree to, add $7500 to that and that’s your offer to the seller. Get a conventional loan for that amount.
Then either move in or lease-option the place. Read this article if you haven’t already. http://www.creonline.com/art-105.htm Use what proceeds you get from the lease to fix up the place.
Would you keep the house or retail it? There’s not enough here for a wholesale flip. If you plan to live on the house, it could be a fair deal, certainly better than shopping with a realtor. If you plan to L/O the home, it could also be nice.
If you’re planning to retail the house, realize that you will have:
and you’re up to 152K without doing any repairs. You might be able to sell without a realtor; your closing costs might be less if you buy ‘subject to’ the mortgage (which might be tougher since the home is in foreclosure). If you paid all cash, you would have lesser closing costs and minimal carrying costs, but you would be sacrificing the interest/gain that you would otherwise have made off of that money.
Does she really need the 20K? In my opinion, the only way for you to profit retailing is to take from the amount she wants out of the deal. She needs 12.5K for a townhouse (is she going to buy while in foreclosure and with a 2 yr old bankruptcy?- interesting, and perhaps worth looking into!!) I don’t think that you can give her what she wants and still make $ for yourself.
But if you’re going to L/O, that’s a different matter. You eliminate realtor’s %, much of your carrying costs (assuming you can find good tenant/buyers fairly quickly), and you likely increase the price you ultimately receive to higher-than-market. Hopefully, you could get a good cash flow out of the deal.
RE: “Next find out who the is the lender and approach them. The mortgage is in foreclosure, so they should be willing to sell that mortgage at a discount. Offer them 85 cents on the dollar”
Don’t you have to contact the listing agent and submit an offer via the agent to offer to the lender??? Does anyone know anything about “VA and FHA compromises”. Are these the pre-foreclosed properties that you want to get in touch with the lender and make an offer (through the agent???) I live in an area where we have a very high VA foreclosure rate due to military transfers and retirements. These poeple have no equity in their houses because they haven’t owned them long enough. Would the lender be inclind to except offers that are lower, say 80% of FMV? Would they be worth anyones time to bother with? Carolyn
Sean this sounds interesting but never did it before. Do I just call the mortgage co. while its in this early stage of foreclosure and ask them to sell me it. And if they do , and I get a conv loan they’ll want downpayment money.
The lender may take a discount, the challenge is to get in to talk to someone who could actually make such a decision and follow through. This works best with small banks or institutions where they still own the loan. Many times with larger banks or mortage companies they have sold the loan off to someone else. It can be a challenge to track someone down, but well worth it. We’ve bought loans from institutions from 25-50% of face value. It’s worth the trouble to ask. No you do not have to talk to the agent in any way when it comes to buying the loan. Now if you arrange to buy the property too, of course you will need to talk to the agent.
John Behle is the person to talk to about this. Basically you are not only buying the house, but buying the mortgage/trust deed too.
Since the Realtor/agent involved does not represent the bank, but rather represents the seller of the residence there is no need to go through that agent to contact the bank.
Even if a bank will not accept discount you are not without hope, because you can buy other trust deeds that are performing and swap them with the bank for the non-performing trust deed.
Before you go contacting the mortgage company be sure the house was not included in the ch 13 proceedings. If so the court will have to OK the sale. Don’t get your hopes up on buying the note from the bank but don’ let that stop you from asking. Do get an option to buy and show so that you can get prospected buyers to look at it.
What about a hard money loan? There are lenders out there that will loan you up to 65 percent of the value of the property and require no down payment.
If the bank will sell the loan for 85 cents on the dollar ($93,500) and you offer the lady $7,500 that comes up to $101,000. If the property is really worth $150,000 fixed up that means you’re just over 67% LTV so you’ll either have to take that 2% out of the lady’s share, out of the bank’s share or out of your pocket.
As for dealing with the bank, John Behle is the person to talk to. Look for his name on this news area or the cash flow news area and write him or post on the cash flow area for advice.
RE: “No you do not have to talk to the agent in any way when it comes to buying the loan. Now if you arrange to buy the property too, of course you will need to talk to the agent.”
This doesn’t make sense to me…when your buying the loan aren’t you buying the property? If I make contact with the lender foreclosing and come up with an agreement is this when you mean I will be dealing with the agent? Basically, then to draw up the agreement to formally submit to the bank in writing? However, I wouldn’t be contacting the agent to negotiate because I’ve already done that diractly right? Then I assume these would be the VA or FHA compromise listings that I mentioned in my post. Also, wouldn’t I find the lender to contact on the tax assessment? Then I would merely have to locate their address to contact the foreclosing agent right? Thanks for all yur input. Please elaborate where you can. Carolyn
RE: “Even if a bank will not accept discount you are not without hope, because you can buy other trust deeds that are performing and swap them with the bank for the non-performing trust deed.”
Could you please explain this to me. How would this work and why would I do this swap? Please give detail if you can, I am not familiar with this process. Thank you for all your input and help. Carolyn
Carolyn,
Maybe I understand your confusion about buying the loan. Lawd knows I broke Terry Vaughan’s tape on this listening to it over and over and over…
When the bank wrote up the promissary note for the guy borrowing the money, that note (loan) gives the bank The Right To Collect Payments (an income stream; i.e. an asset).
The house is a thing that someone can buy or sell.
The note(loan) is a thing that someone can buy or sell.
When you sell a loan, you sell The Right To Collect Payments.
When you buy a loan, you buy The Right To Collect Payments.
In this foreclosure scenario, the bank could say “Hey, we aren’t getting paid the promised payments.” You (a Behle-trained person) say to the bank “I’ll give you $30,000 for the $60,000 note.” (I’ll give you $30,000 for the note that gives you the right to collect payments on a $60,000 loan). The bank says “OK, we weren’t getting the money anyway, we’ll take your $30,000.” (Or whatever the numbers were.)
Now what do you do with it? You listen to the experts on this board on how bring the totality of the deal to fruition. (Did I write that?)
Hope that clarified that a note(loan) is a different marketable commodity from the property itself.
The big difference is whether you are buying the property or the loan. If I buy the loan, the agent does not need to be involved. This would be pre-foreclosure. I don’t end up owning the property unless it goes all the way through foreclosure.
If you are dealing with a bank who has already foreclosed, then there is no loan. They own the property and if it is listed, you do need to deal with the agent.
It all depends on the ownership of the property and what you are buying. Buying the loan is not buying the property and is does not involve the agent. If it goes through foreclosure, you would not need to pay a commission, though it is always a good idea - a great idea - to have happy and well rewarded agents out there bringing you many deals. It would depend on the circumstances. If the agent brought me the deal and then I bought the loan from the bank and ended up with the property or a nice performing loan then I would want to compensate that agent. That would have to be through the broker and would not have to be as much as the commission amount.
On the other hand, if I found the property through some other means like foreclosure notices and it happens to be listed, I buy the loan, it goes all the way to foreclosure, I would not necessarily even meet the agent. In that particular case, the agent had a chance to sell the property, was too poorly trained to do his/her job and let his client get foreclosed on. As a matter of principle, I would like to see this agent in another profession. Something they could be competent in - Possibly something in a striped uniform with a hat.
The bank has a problem. A non-performing loan. They want out. One solution is they foreclose and then re-sell the property for cash and take that cash and invest in another mortgage.
The bank can also accept a “performing” mortgage from me. That would look like an exchange of one note for another. I substitute my good note (purchased at a discount) for their bad note.
Much details on this technique can be found on the cash flow forum, but here’s a simple primer.
Imagine that you have just purchased a house using seller financing. You placed 10% down and you are owe 90,000 at 8% on a 30-year mortgage (“Mortgage1”). You would like to refinance, but banks refuse to loan more than 80 percent.
You happen to find a mortgage of 90,000 for sale at 8.5% payable in 15 years (“Mortgage2”). The seller is asking $70,000 for it. Obviously this mortgage is of better quality than the one you’re paying on, so you approach the person you’re making payments to and ask him if he’d like to trade mortgages – the one you owe on with the one you have an opportunity to buy. Naturally he does.
You then get a mortgage loan from a conventional bank (“Mortgage3”) for $70,000, you use the money to buy Mortgage1. You trade Mortgage1 with the seller for Mortgage2. Since you no longer owe anything the seller reconveys Mortgage2 and you have just gained $20,000 in equity on your house.
So how does this relate to what we said before? Well, what if a person is trying to sell their house (they’re in foreclosure) but they don’t have enough equity to make it worth your while? Using the method outlined above with the bank, you can create enough equity in the house for it to be worth your while.
Or, since the loan is in foreclosure, you can offer to buy the loan from the bank. John Behle (our resident expert) says he has picked up loans from banks at 50 cents on the dollar. It’s an idea worth trying.