Posted by Ricky Gibson on May 05, 1999 at 07:58:10:
First of all, my business card reads “I buy houses, all cash, any condition”.
I apologize for not being thorough; What it should have read was … going over her paperwork from the FHA I read a statement offering her these options. I am the last person to be offering anyone advice, I’m as green as they come. If I can some how help her and benifit myself then so be it, and if I can’t help her and am still able to benefit then so be it. It’s a very uncomfortable position to be in, she calls me almost daily. I submitted a loan application to the FHA and I’ll go from there. I’m the one seeking advice, that’s why I’m here. Thank you everyone for your posts.
Posted by Ricky (CenLa) on April 30, 1999 at 17:11:39:
A Woman who had gotten one of my business cards called and said her FHA home was going into forclousure and was there anything that I could do to help. I went to see her and we went over some of the paperwork. ARV $65,000, balance of $58,000, payments of $176.00/mo; Her only options are to pay balance in full, get a new loan, or let someone assume the loan. I called the Rural Delevpment office to ask about assuming the loan. They said they would send me out an application. I thought about assuming and then leasing back to her.(She has two small kids). What should I look out for?
I assume from the CenLA that you are a Californian. Civil Code 1695.12 specifically disallows a lease option [or any option to buy] to a seller in foreclosure. News to a lot of guys on this site. There is case law up the yang on this in Miller and Starr.
Regarding calling for a payoff, my methodology is a little different:
For the original contract to sell I get the balance from the most recent of myriad of statements sent the seller. Since California law requires I use a 5 day recision period with no money changing hands for the seller, I then take my contract to my title company and have my hand trained escrow officer call and get the payoff. My standard contract says any differences come out of the equity paid the seller. This keeps FmHA [or any other lender] from requiring an assumption and/or accelerating the note.
I wonder what your card says… Frankly, your statement beginning with ‘she asked if there was anything I could do to help…’ and continues with ‘her only options are …’
implies that this woman was seeking advice, probably on how she could keep her home.
In response to your question “What should I look out for?”
You should be concerned that one of the consequences of offering ‘self serving’ advice to financially distressed homeowners
is an occassional lawsuit filed by watchdog groups on the lookout for predatory lenders.
Though I don’t know the facts, it seems to me that if told this woman that she had only three options that could help her, you rendered less than competent advice.
How much money would it take to reinstate the loan? Possible for you to have her deed the house over to you & then reinstate the loan. Loan is left in her name, but house is in your name. You can then do a contract for deed for the $65,000 to $68,000 with X amount down(X possibly = amount that it took to reinstate the loan or more) & a payment greater than the one to the mortgage co. creating positive cash flow. Put a call/balloon feature in there for 2 years and don’t accept any CASH payments (easier for the buyer to refinance the house when balloon comes due). When they refinance, you can get the equity. You can do this with just about any foreclosure. You can do your contract with whomever has the money.
Buying a foreclosure and lease/optioning back to the former owner is risky. Some pay rent very well, but can’t get re-mortgaged. So you’re stuck with them or have to kick them out eventually. Some make you chase them for your money and you end up having to evict them. Then they defend by accusing you of fraud in buying the property. It’s the classic example of “no good deed ever goes unpunished”. If there’s a lot of equity, you can come out okay money wise, but it’s very disheartening to have to deal with people that way. About 1 in 5 will get straigtened out to the point of buying back the house so you make good money without a lot of aggravation.
This deal seems too thin to take on, plus there are some questions that you need answers to. How can the monthly payment be only $176. What about taxes and insurance? How did she get behind on a $176 payment? And how will she pay you what you have to have in order to make it work.
I don’t know anything about Rural Development loans, if that’s what she has; however you said it was an FHA. FHA will often approve short sales, i.e. one where the property sells for less than the mortgage balance. An offer of $50k might buy it and create a little equity, but you might have to sign something that assures HUD that the former owner is not receiving anything from the sale. This might include a leaseback, but I’m not sure about that. Hope this helps.
Buying a foreclosure and lease/optioning back to the former owner is risky. Some pay rent very well, but can’t get re-mortgaged. So you’re stuck with them or have to kick them out eventually. Some make you chase them for your money and you end up having to evict them. Then they defend by accusing you of fraud in buying the property. It’s the classic example of “no good deed ever goes unpunished”. If there’s a lot of equity, you can come out okay money wise, but it’s very disheartening to have to deal with people that way. About 1 in 5 will get straigtened out to the point of buying back the house so you make good money without a lot of aggravation.
This deal seems too thin to take on, plus there are some questions that you need answers to. How can the monthly payment be only $176. What about taxes and insurance? How did she get behind on a $176 payment? And how will she pay you what you have to have in order to make it work.
I don’t know anything about Rural Development loans, if that’s what she has; however you said it was an FHA. FHA will often approve short sales, i.e. one where the property sells for less than the mortgage balance. An offer of $50k might buy it and create a little equity, but you might have to sign something that assures HUD that the former owner is not receiving anything from the sale. This might include a leaseback, but I’m not sure about that. Hope this helps.
Rural Development usually loans money at a low interest rate. I’ve seen 1%. However when that owner sells the house there is a thing called recapture. There is a formula, not sure exactly what it is, that says in return for the 1% interest rate a portion of future appreciation goes back to Rural Development.
Rural Development usually loans money at a low interest rate. I’ve seen 1%. However when that owner sells the house there is a thing called recapture. There is a formula, not sure exactly what it is, that says in return for the 1% interest rate a portion of future appreciation goes back to Rural Development.
Posted by Joe Kaiser on April 30, 1999 at 17:33:10:
Ask them for the payoff, not the loan balance. There’s often a big difference since FmHA has something called “recapture” built into their loan program.
Posted by Joe Kaiser on April 30, 1999 at 17:33:10:
Ask them for the payoff, not the loan balance. There’s often a big difference since FmHA has something called “recapture” built into their loan program.