Posted by Redline on November 25, 1998 at 14:10:11:
Ahh … I did not see the “partial” payment part. I know this is true - they usually want all the payments or nothing.
As far as working the deal, surely it seems both these ways would work. JPipers is the quick and clean way out and I’m assuming he prefers this because the deal’s a little skinny. I see his point. I would take the money in the beginning and be out also. In this case, that would be the ‘fast nickle’.
RL
Can I help this couple? - Posted by TIM (OH)
Posted by TIM (OH) on November 24, 1998 at 13:09:07:
Got a call today from my classified ad that “I buy notes”. The couple has a house that appraised 3 months ago at $62,000. The lending company holds a first mortgage @ $54,000 (87% LTV) which makes it impossible to work a note deal. They could not make a payment in October and the lender has refused to accept the November payment and the upcoming December payment (at least that’s what he tells me). The owner claims he can continue to make the payments, but cannot make up the back payments.
Here is a list of my questions and my thought process:
1.) I can’t understand a lender refusing payments in lieu of foreclosing on a property with an 87% LTV.
2.) Is there anything I can do to help this couple and assume the $8,000 equity (The back payments only total $1,400.00). They just want to “GET OUT” and hopefully save some of their credit rating.
3.) The existing loan is at a 13% interest rate. I don’t think I can refinance as “non owner occupied” due to the LTV, without a significant amount of monetary input.
4.) I’m not sure the existing occupant/ owners should stay. From my discussions, they have a money management problems.
5.) The rents would not support the existing, assumable, $630.00 payment.
6.) Can’t flip…not enough equity.
7.) Lease/Option would require a much lower payment (see "can’t refinance above).
The deal looks like a PASS to me, but I’m looking for some interesting observations from the “experts”.
Re: Can I help this couple? - Posted by JPiper
Posted by JPiper on November 25, 1998 at 11:38:05:
The way I understood this situation is that the buyer is not offering ALL of the back payments, only SOME of them. Most lenders I know won’t accept this. The want ALL or nothing.
I think there is a small deal here. I think you could lease/option the property, and then assign the deal for an assignment fee that would bring the payments current and put some money in your pocket.
A retail buyer without the ability to get a loan would be more than interested in this skinny deal…and you could probably find one quickly. The only question is whether you are willing to work for the small amount of cash that you could assign for.
JPiper
Alternative view - Posted by Bud Branstetter
Posted by Bud Branstetter on November 25, 1998 at 09:03:49:
Here is a list of my questions and my thought process:
1.) I can’t understand a lender refusing payments in lieu of
foreclosing on a property with an 87% LTV.
>They may be bluffing or they may just be dumb and not care. Remember
policy!
2.) Is there anything I can do to help this couple and assume the
$8,000 equity (The back payments only total $1,400.00). They just want
to “GET OUT” and hopefully save some of their credit rating.
>Have them sign a personal note or a note against their car or anything
that has equity. Not that they will pay but you may get something.
3.) The existing loan is at a 13% interest rate. I don’t think I can
refinance as “non owner occupied” due to the LTV, without a
significant amount of monetary input.
>Why bother if you can do a lease option.
4.) I’m not sure the existing occupant/ owners should stay. From my
discussions, they have a money management problems.
>I hope you aren’t planning on lending them buy. Any money goes to
the back payments.
5.) The rents would not support the existing, assumable, $630.00
payment.
>You can’t be sure you can’t find a tenant/buyer to pay that until
you try.
6.) Can’t flip…not enough equity.
>It doesn’t mean a homeowner won’t buy.
7.) Lease/Option would require a much lower payment (see "can’t
refinance above).
>Ah, the negative thought that says “I’ll not try because it won’t
work.” What will it cost to get the documents signed from the seller
then put an ad in the paper. 50% rent credit against purchase price.
Ask for whatever they have as option consideration from the tenant
buyer. Get enough that will cover back payments. No real monthly positive
and a small back end. I think $65K and $650/mo is a reasonable asking price.
$65K-54K mortgage-1400+(option consideration)-(650x12)/2 is still more
than you had. You can work a skinny deal like this if you do not put
out any money until you find a new tenant. The seller sould be motivated
to work with you. They need to understand that they need to move on
and have to move on quickly.
They could also give you the deed and you offer as owner financing
with a balloon in several years.
If you are so busy with the L/Os making 20-30K then pass. If it would
be a good experience to try go for it. Just don’t put your cash into
the deal until you find a tenant buyer.
Re: Can I help this couple? - Posted by Irwin
Posted by Irwin on November 24, 1998 at 23:11:16:
In a case like this, if you can’t walk into (figuratively speaking)the mortgage company and lay $45k on the managers desk to buy down the mortgage, you’ve got no place to go. If this is an uninsured loan, and the house is a little run down, and the owner
looks like a candidate for chapter 13, you have a chance. If it’s an FHA, VA or insured conventional, you probably have little or no chance that they will take such a short payoff on a house with $62k appraisal. Lisen to Joe. Minimum equity in a f/c situation should be 80% and the bigger the mortgage, the more equity I look for.
No, you can’t . . . - Posted by Joe Kaiser
Posted by Joe Kaiser on November 24, 1998 at 15:55:46:
You’re forgetting Rule #1 - “The Top Twenty Percent Doesn’t Count.”
In other words, there’s no equity to work with until you’re under eighty percent loan to value. With typical closing costs of ten percent or more, that top twenty percent can vanish in the blink of an eye.
Unless there’s a way to build cashflow with the existing financing, there’s little you can do with a property that doesn’t have real equity.
Joe
Re: Can I help this couple? - Posted by Redline
Posted by Redline on November 24, 1998 at 15:37:10:
In my neck of the woods, I believe it’s illegal to not allow a homeowner to become current on a loan if he can and I would imagine this is true elsewhere as well. Find out what’s really going on.
RL
Re: Can I help this couple? - Posted by Brad Crouch
Posted by Brad Crouch on November 25, 1998 at 04:02:01:
Redline,
According to Ron LeGrand, the lender is NEVER “obligated” to allow a loan to be re-instated. Strictly up to the lender. Any State.
Brad
Re: Can I help this couple? - Posted by Redline
Posted by Redline on November 25, 1998 at 11:19:17:
I could swear I’ve heard to the contrary - but I’d have to research it.
How could this be? This would leave them open to claims of all kinds: “They want to foreclose me just because I’m X” - fill in the blanks.
Why in the world would they want to forclose when they can become current? (unless of course, interest rates are at 12% and this loan is 6%).
RL
Re: Can I help this couple? - Posted by Tim (OH)
Posted by Tim (OH) on November 25, 1998 at 12:42:27:
That’s what I don’t understand, REDLINE, the loan is at 13% (well above current market rates), there’s only $8,000 max equity, at best (easily eaten away by foreclosure). I’m going to see the house and get the details this afternoon (thanks to Bud). If I can make several thousand working out the problems, I’LL DO IT. As Joe Kaiser says " I’d rather make a fast nickel, than a slow dime".
I’ll take the advise I’ve received, I intend to get an option to purchase for $1.00 assuming the 1st and sell L/O for retail of $65,000. Not a penny of MY MONEY will go into the deal without approval from the lender and a signed contract from a retail buyer. I DON’T HAVE TO BUY. With $1,500 option consideration (for back payments), $650/mo rent, $250/mo rent credit, I’ll make $4,000 over 2 years upon execution of option. If the option isn’t exercised I’ll L/O again for another $2K-$3K consideration.
Whattya Think?
Re: Can I help this couple? - Posted by JPiper
Posted by JPiper on November 25, 1998 at 13:01:34:
I wouldn’t do it this way personally.
I would l/o the property subject to locating a suitable tenant/buyer. I would then assign the whole deal to that tenant/buyer for a fee of $5K-10K for a 3 year lease/option. I’m now out of the deal.
By the way, two points. I wouldn’t ask the lender for approval. Why would you do this? Second, the reason that lender is not accepting payments is that according to your original post the owner is not offering ALL the back payments. Most lenders that I’m aware of won’t accept partial payments under any circumstances unless they have a written forebearance agreement.
JPiper