I wouldn’t call it a snag…more like a MAJOR GAPING HOLE!
But seriously… you said she was EXTREMELY motivated. Why? Is she about to go into foreclosure?
If so, you may have a more realistic shot of getting the second to discount. The other option would be to wait until it is foreclosed and goes back to the lender. That would wipe out the second and you could try to buy it for a more reasonable price. That wouldn’t help her, but it would allow you to make some money. Bottom line is, if she can’t pay the mortgages there is no way out (other than foreclosure or a deed in lieu of foreclosure) because the value of the debt exceeds the value of the property.
Or is she just really motivated because she thought she could sell a property worth $43K for $66K?!
I’m in the process of doing my first deal (I think). Here’s the background
I found a REALLY REALLY REALLY motivated seller. She has a small house in a low - middle income neighborhood. The FMV of the house in it’s present state is 43,7K and with a little work its FMV would be around 50K. she’s willing to let it go for what she owes on it which is 31K.
Where’s the snag you ask?
Well, she didn’t have financial literacy so somehow she got a 2nd trust on her property, with the stipulation that she has to live there… the 2nd trust is at 14% interest and it’s for 35K so the total value of her debt is about 66K which is more that the property value of her house even if she rehabs it fully…
I’ve thought about different ways to help her and make a profit. However, the few creative ideas I’ve learned from all of you doesn’t seem to apply. Maybe a better way to say it is that I haven’t learned enough to know when to apply a creative idea to a situation.
Can any of you who’ve done deals give me some advice? I’d really appreciate it…
As you already know, there is no equity in this deal. In fact, there is negative equity. The only chance the deal has is to negotiate the second, and perhaps even the first, mortgage payoffs at a big discount. This will largely depend on who is holding the note, private individual or institution. Even if you could get that second note down to, say, $5000, that’s still thin (along with the first) for a 50k FMV rehab deal, after costs. Where did all that money for that second trust go? It wouldn’t be out of line for you to ask. Did she buy any assets with it, assets that could be sold to pay down the debt? Where did that 35k go? If I were you, I would search for a contribution from the seller, and discounts from the note holders. I’d make a couple of phone calls on it, and if nothing pans out, move on. As it stands, this is no deal.
Re: First Deal Snag? Please Advise!! - Posted by M Jamal Green
Posted by M Jamal Green on March 28, 2001 at 15:31:01:
Yeah, I figured as much. What I was trying to do was get the property and flip it originally. I thought I found everything. A motivated seller, a property at almost at 30% discount in a not-so-great, but still profitable neighborhood and I knew a few rehabbers who would buy it from me (I wasn’t going to mark up the price tooo much, like 3K or so since it was going to be my first deal).
That 2nd Trust pretty much killed it, but I was wondering if I could get anything out of a situation like this…
Thank you for taking the time to write me and give me your advice. I really appreciate it.
