EXPERTS...VERY lucrative idea.. - Posted by Frank

Posted by osirus on June 03, 2002 at 02:03:47:

“”“Ummm, well i’m kinda being taught this business right now. My teacher did this and it is considered hard money lending.”"""

I am curious to find out more about “this buisness” Is there a coarse or a website that teaches about this? I would like to learn how to make $70000 pure profit per month like your lying teacher! ;-D

As for the ethics issue of lending to people who you think can’t make payments. I always felt that ethics is more a matter of behavior than what you think. Whenever you about here about someone being unethical it is normally because of unethical behavior as opposed to unethical thoughts. For this reason, I do not beleive it is unethical to lend money to people to people “thinking” that they cannot make their payments as long as you are able and willing to act like lender and do not actively do things “unethical” that will increase the chances of default. Things like: 1)charging as much interest the law will allow 2)pulling credit card company tricks 3) severe and unreasonble prepayment penalty. Who knows; maybe the borrower will resolve whatever happened that made them get behind in payments and keep their house!

EXPERTS…VERY lucrative idea… - Posted by Frank

Posted by Frank on May 26, 2002 at 14:48:57:

I see this as a way to make some really strong return on your money. Nearly 100% ROI if done correctly.
I really don’t think any judge could possible see this as fraud. I’ll explain why as we go along.
O.K. Here it is, short and sweet. (actually long and complicated)

Let’s have fun with this one guys.

Perhaps it has come up before or is just plain out fraud (but I don’t see how), and haven’t seen much on it here at CREOnline.
I can’t find any posts in the archives about it either.

Here it is:
I guy is in foreclosure. He is only at about 60% LTV and INSISTS! on saving his house. He calls on my ad. Lost his job, got a little behind with everything so now his credit sucks and he can’t refi, thus he’s calling me to solve his problem. There are probably some lender out there who would actually refi this guy but why let them make the spread when you can play the position of the bank at low risk.

Existing conditions:
FMV 100k
1st 60k @ 9% interest
arrears and fees 3k
No 2nd

Mind you, I haven’t studied an all out sub2 course, maybe this is already in there.

Here’s the story…Can I buy this property Sub2 from him, pay his reinstatement amount of 3k, put 1k in his pocket help him out and then…

Immediately (i.e. simoultaneously) sign a land contract with him to buy the property back from me at 64k. What?! That’s the same price as you bought it from me for! Sign me up, he says, right?.
Land contract would be something like 14.9% (usury law in Ohio is 25%, I think)interest only for 5 years with a balloon of 64k at the end of 5 years. No prepayment penalty at all because my aquisition costs are built into the purchase price, 60k + 3k + 1k = 64k. Doesn’t that sound tasty to a homeowner in default? It should because it is. He can’t see it as nothing but a refinance and that’s essentially what it is. I’m the bank, and I’m making the spread though. What’s at risk though?..

Now let’s look at the guts… risk/reward

I’m putting up 4k to own this house for 64k… great target LTV to buy at, no?
I’m making the spread between 14.9% and 9% on 65k which is great cashflow.

60k @ 9% = $483/month
64k @ 14.9% interst only = $794
Spread per month = $311
That is almost 8% ROI per month! not per year!
I’ll take this as long as I can get it.

I would think the homeowner would be smart enough to refi as soon as he gets his act together though as there is no prepayment penalty by me at all. (should there be maybe a small one? :wink: what do you think?)

I’m selling the house to the original homeowner for exactly what I bought it for. I’m just charging a higher interest rate. That’s totally fine with him as he is saving his beloved house.

What do I have at risk? 4k I can’t see how I have more than that at risk.

What if the homeowner gets cute and wants to call the note due? GO ahead… shoot yourself in the foot! They are going to foreclose on YOUR! loan and the property that you live in, and all your equity stands to be lost.

Do I want to take the chance that the homeowner will try to get savvy and have his own note called due… NO WAY! Or do I want to take the chance that he will stop paying me and leave me with 4k out of pocket and not even make me one mortgage payment. NO WAY!

Therefore, this will be a strict loan. One day late and the foreclosure proceedings begin by me. Seriuosly, don’t fool around… try me!!
The real kicker is I will have a performance mortgage recorded after I take ownership right behind the existing 1st mortgage. Grantor, me. Grantee, me. (Experts, can I do this??) The performance mortgage will be for the amount of equity in the property, about 36k. The performance mortgage will basically say that if the land contract dated mm/dd/yy (same day as closing of everything else) is satisfied, this mortgage shall be released in full. The performance mortgage would get recorded right after the quit claim and right before the land contract. IF the land contract is breached, the mortgage does not get released. Remember, it’s in front of the LC on the records so it is essentially in 2nd lien postition.

Are you still with me here? Has anyone thought of this already? If so tell me my error in thinking.

He stops paying me… I stop paying the bank. I stop paying the bank… they take “my” house with the loan in his name, (which means the foreclosure is against him!)the 1st mortgagee will hopefully clear everything they are owed (if the house was only at 60% LTV), and I sit back and collect everything beyond that on my performance mortgage. And the homeowner gets foreclosed on for being trying to play hardball with me. Of course he and could agree to release the contract and I would more than likely pick up his payments again for him at that point. Now he’s definately going to call the note due to screw me (and himself) right. Maybe I’ll entice him by saying when I sell, I will pitch 5k his way.

If the bank finds out about the transfer by way of an honest bust and calls the note due, I think I need to step up and pay the note off in full. One would need to be backing some cash (64k) to do this unless they know a lender or note buyer that will step into that 1st lien postion. Really not much for them to lose at 60% LTV, but the deal is pretty complicated. Worst case scenario, if its an honest bust, you have hopefully built a good relationship with the homeowner and he trusts you to release his LC at this point, so you can refi, then just record a new one after the loan closes. He should be even happier… the loan is now out of his name! One needs to build a relationship of trust and confidence with the homeowner to do this type of deal.

Again though, if he doesn’t pay me, I don’t pay the bank. Or if he purposely leaks and they call the note due…
It’s foreclosure city! … on him, not me.

Again, what’s the homeowner thinking?..Big deal, my interest rate goes up. That’s a small price for a homeowner to pay for essentially a refinance but gets to save his house if he is that adament about saving his house. He can always refi with no prepayment penalty. In the meantime, I will be collected serious ROI.

Those who say, nah… too complicated!
You guys talk about doing the same thing (collecting a spread) except with “new” tenant buyers who have no regard for you or your loan except their own LC downpayment. So why not deal with someone who does have regard for all this.

Why not use Joe’s Helping Hand? (sale/leaseback) I don’t think that stands a chance in court when someone takes a 40% equity hit from some savvy investor. NO chance judge will grant in your favor. (S)he’ll call it a loan and see you are making ridiculous returns and call it a violation of usury law. Case over.

Not to mention an even bigger aspect!! KNOWING THAT THE DEFAULT HOMEOWNER WHO SELLS YOU THERE PROPERTY HAS ALMOST NO CHANCE OF COMING UP WITH ALL THE CASH REQUIRED IN YOUR OPTION AGREEMENT/PRICE.

Knowing that going IN is JUST PLAIN OUT SHADY.

Why not instead get into the used car sales business and sell cars for a small down, with high payments you know the buyer can’t make, send your repo guy out to repo the car after a few missed payments and sell it again 4 or 5 times like that. Then sell it on fair terms the last time to see it go bye bye for good after you made tons of unfair money on it. NO THANKS PERIOD. SHADY SHADY SHADY!! Joe Kaiser is quite a thinker but that borders on BAD BAD vibes with me. To each his own. Just think of what you’ll say at the pearly gates for making a million on someone else’s hard luck and by using a pretty slick savvy technique.

Why not do it the way I mentioned instead and make great rates of return for stepping in, helping someone out, and knowing that they are not going to sue you for your new claimed equity that doesn’t belong to you. They will probably love you for what you did for them, pay you your spread and refi out as soon as they are able…

meantime, send the payments to me.

Only iffy is how to get the taxes paid and not to show in the new homeowners name. Not sure here. They go to me, then back to homeowner/buyer after the LC is recorded? Maybe nothing to think about there huh??

If you guys have comments… I would love to hear them.

EXPERTS…VERY lucrative idea… - Posted by Jon Richards

Posted by Jon Richards on May 27, 2002 at 17:58:44:

Frank

I love your creative thinking, if not your spelling.

I don’t know all of the ramifications of your tansaction; but I have had luck twice (but felt terrible doing it) by lending the person in foreclosure the money to make up the late payments and bring him current.

Here’s what I did. Placed an ad in the paper: “If you are in foreclosure and need help, private party will loan you money. 6% interest, quick funding.” Then my phone number.

In California I found that around $5,000 or so will clean up the arrears and late fees for many foreclosures in the $250,000 range. However, I now have a small second on the property (with lots of equity).

In the two deals I did, and from what others have told me, the thing that got the person into foreclosure in the first place will invariably happen again. It is almost always, drugs, divorce or bad health. (that’s why I felt badly doing this).

Now when they miss payments again, I am in a postion to start the foreclosure and twice ended with substantial equity in a duplex, and the second time in a house in Oakland.

When I make the small loan, I send a letter to the bank holding the first (that has just been made current) and tell them, I have an interest in the property and should the owner ever be late with a payment, I will make the payment for him. In fact, I won’t make the payment…I will start foreclosure. It’s just a way to make sure I know if the owner is not on time.

Anyway…if you like to play that foreclosure game, you should get some more feedback, and legal advice for your state.

Jon Richards
NoteWorthy Publisher
www.noteworthyusa.com
800 487 1864

Re: EXPERTS…VERY lucrative idea… - Posted by Paul

Posted by Paul on April 15, 2006 at 12:05:06:

When you make the loan to the property owner to make current, you are put in the second position correct? If he fails to make payments in the future, arent you at serious risk of not getting paid being in the second position? Can you please just explain a little further how you foreclosing on the payor puts you in an advantageous position. Thanks

Re: EXPERTS…VERY lucrative idea… - Posted by maks

Posted by maks on May 27, 2002 at 23:10:35:

Ummm, well i’m kinda being taught this business right now. My teacher did this and it is considered hard money lending. You lend them money based on equity in their home, thats how you get the 2nd. $5k is a small loan compared to what you can do with this. Look at lending to businesses as well. My teacher made at least $70,000 a month pure profit (i know he’s lying, he made a lot more) not counting the finance rate you set. And get this, he never fronted his own money to borrowers. Show the property’s equity, credit history, etc…and a private investor will front you the cash. But the main deal with this business is your code of ethics. I understand you have to get your payments but it sounds like your looking at making money by taking back homes essentially from those who you think can’t make the payments.

I’m saying don’t use your own money. Take the offer the private investor gives you, keep 5-10%, offer the rest to the borrower, and finance them around 10%. Its a lot more work but you make so much more money plus you can make several loans a month.