OH GEE, THANKS DAVE! BUT HERE’S A POSSIBLITY ANYWAY. - Posted by Bill Gatten
Posted by Bill Gatten on May 16, 2000 at 13:43:33:
Oh, gee, thanks…Dave. Give me one that is not only a monkey hanger, but with 14 payments in arrears and legal fees to boot! Now this is what I call a test.
Understand that I work with properties that are 2 or 3 payments behind sometimes; but most often the only real problem the OTB* prospect has is that he is upside down by 5, 10 or 15%, and are heading for financial distress (lost job, no longer can afford the payments, etc.) and just want out. In those, we find (easily) someone who can afford five to six percent in upfront costs, and couldn’t care less about the over-encumbrance. [*Over the Barrel)
None-the-less…here is what I suggest for Mark’s situation (may work; many not work: but even if it doesn’t there is no better alternative and it certainly worth a couple hundred bucks for a newspaper ad).
Before Mark (or the lady) walks away…
The property is readied for placement into a land trust for sale of a beneficiary interest to someone who would prefer owning over renting, and who would be able to make the payments…but who wants a purchase in which he has no credit or bank qualifying (safety of the PACTRust makes eviction os easy than 2-3 payments in a Contingency Fund can cover a world of bad credit?if the tenant defaults, you just use their money to kick them out with).
First off…the ad says: NO QUAL., NO CRED. - $15,000 and 3 advance pmts MOVES YOU IN. Beautiful 3+2, FP, newly carpeted. Near shopping. Gorgeous! $100K home, only $735 p.mo Plus tx and ins. Call xxx xxx xxxx now."
When they call:
?Yes, we have this home over there on XXX street, and if you can cover the closing costs, we’ll just GIVE it to you (pause). The only thing we want out of it is to have you sell it or refinance it in, say, 5 or 6 years… and at time if there’s been any appreciation we’d like to share in, say, ___ percent of it with you."
Now understand, Dave, that the above is designed to make money for an investor who is helping the owner out of a problem. However, if I were consulting for the owner only, I?d be suggesting that this may be a way to get someone to take over her payments, while avoiding RE commission, and disposition costs.
Remember that, assuming a six or seven year old loan, whomever takes over the property this way, will be paying far less for it than someone who would buy it on a short sale. This is because the loan is aged (more applies to principal each month, than on a new loan); and the term remaining is less than the term would be for a new loan (fewer payment overall). And…overall, anyone in their right mind would rather own than rent, just from the tax drain standpoint. The over-encumbrance can be seen as a prepayment penalty if the property is scheduled for sale before appreciation and equity build-up from principal reduction has a chance to take the loan amount down sufficiently below the encumbrances.
ALSO?don?t forget that the amount of money that the buyer has to come in with can be lessened by the amount paid by the seller. She may say she can?t help financially: but think about what it going to cost her in debt relief taxes if she doesn?t (the BK has already happened?she?ll get with a 1099 and those taxes will be due now). It will be a lot less expensive to pay the buyer and few thousand than to pay the IRS a lot more?.and if she doesn?t have it now, she can pay it next year?or monthly?for a year or two?etc.
Like, I said Dave, we done these on many occasions?but their not as easy as the one that are jut over encumbered, without past due payments, charges, penalties, taxes, insurance etc.
ASSUMPTION TO BASE THIS LADY’S HOP ON: Someone with marginal credit will be happy to buy a house with as 15% down payment if he has the money. Someone with nor or bad credit, but good intentions, will be just as happy to spend the same amount of money (if they have it)…and the process described here protects well from missed and late payments (the defaulting party not only loses his home if he messes around, he looses $15,000 plus, and could up with a suit for all remaining payments and an IRS tax recapture on his back). And, too, even in the event of a default there are no payments past due, and the property’s value has probably gotten closer by that time to catching up with the loan amount.