First MOTIVATED seller - Help please! : ) (LONG) - Posted by Karla - MN

Real Estate Investing Real Estate Law
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Posted by Joe Cliffford on July 19, 2002 at 24:55:26:

Karla –

From the sounds of things your client is still in the BK process, a chapter 13 filing can take as long as five years from filing date to discharge (most never make it that far, end up filing chapter 7).

If your client is still in the Chapter 13 process you (or your client) will have to deal with the trustee to make the deal, part of the process is that the trustee is involved in the creation of and oversees the filers repayment plan.

Your client may already have permission from the trustee to sell the property and move to an apartment but I would guess that the trustee has made partial/complete repayment of the other debts included in the repayment plan a condition of the sale of the property. BK trustees are not stupid, and I would be surprised if the trustee in a Chapter 13 proceeding would let the filer just give away a whole pile of equity like that.

If, on the other hand your client filed and discharged a Chapter 7, all of the above is garbage. The $30k would have to be new debt since the discharge and no longer subject to review by the trustee – and probably not your problem unless it seems to be worth your while.

Find out what Chapter and the status of the case prior to pursuing this one…

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First MOTIVATED seller - Help please! : ) (LONG) - Posted by Karla - MN

Posted by Karla - MN on July 18, 2002 at 16:56:31:

Okay, first week with a classified ad, and I received a call - here is the situation:

Single woman (w/fiance) homeowner w/a bankruptcy 3 years ago to keep her home from being foreclosed upon (she has owned it 8 yrs). Now she has $63K mortgage and approx $30K+ in bankruptcy costs (this is for car and other things, she said). She is working two jobs and TIRED of trying to make ends meet, and can not afford to give her house the “TLC” it needs. The house is a 4 BR/2.5 BA, and comps for decent homes in this area, from what I have seen (will do better comp work, left message for realtor!), would be at LEAST $130K. She has already signed and paid for an apt that starts on Aug 1st, so she needs this taken care of by then (she has no latitude to make mult. pmts). She threw out the number $98.5K as an asking, but I don’t think that she is at ALL firm on that - she explained that that was what she would need to “cover” both debts.

HERE is my newbie dilemma - how to speak to her about the fact that my offer will not be covering all of her NON-house debt…I want to be fair, but even with comps to support the ARV, with repairs my offer will more likely be closer to $75K. My plan, if the home turns out to truly only need $5-10K of repairs/cleanup, is to try to take it subject to and market to a retail buyer once I have completed cleanup, with a note to provide her with some equity if I feel it is fair, given repair estimates and comps. I COULD buy it outright (which would take time, and she needs pmts taken over NOW), but could save the costs of closing costs this way, right? I am less knowledgeble about subject to deals than other CRE aspects, and will research that tonight! I think I have to get her to sign over the deed, and then I am able to close with my retail buyer.

So, two issues: one, how best to break the news that my deal will not cover her bankrupcy consolidation loan, and two, what are your suggestions on how to lock up the property in the way that makes it easiest to resell to a retail buyer (planning on holding one-two mos at most)?

Thank you all for your posts of advice! I have been reading for mos, and only now am at a point where I truly have a situation to ask advice on!

Karla

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Re: First MOTIVATED seller - Help please! : ) - Posted by jeff

Posted by jeff on July 18, 2002 at 17:25:17:

if yuoll be rid of the place in a couple months at most, then you wont have to worry about the land trust setup, thatll save you a little time and money. simply signing over the deed with a warranty deed and bill of sale will take care fo that. make sure to get an authorization form to talk to the bank abuot her current loan situation and youll need a POA also more than likely, its good to get it ahead of time just in case you do.

as far as the explanation of her profit potential off this thing, make sure she knows you buy houses, not cars. you are a real estate investor and have no desire to be running around paying off other people’s car payments. of course this may be a deal beaker with her if she refuses to sale and still be responsible for the car debts. but if you have to pay off the car debts also you still have 30K or so to play with. but if the 2 house payment thing is gonna throw her for a major loop then you can probably do some major negatiating and do beter than paynig of everything.

what type of NK did she file? 13,11,7? how is her BK structured? is the house still on seperate payments and can easily be done with a subject to setup? Bk conplicates everything and i have yet to master this arrangement. i have dealt with a few BK’s and have found it to be very aggrevating. since the BK was 3 years ago maybe you wont have to deal with a trustee to approve yuor subject to deal. i doubt if you wuold have to since the BK has already been settled, but like i said, i know very little about them and havent dealt with enough of them to conquer that end of investing.

one more thing, if you plan on doing a subject to and have to pay off everything, how do you plan on handling the car payment end of the deal. i wouldnt have a clue how to go about a subject to on a car along with all her other debts. if all these have seperate payments, your gonna have to handle all these payments seperately. you may have to come up with enough cash to cover her other debts up front if you have to pay off everything to get it done.

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Re: First MOTIVATED seller - Help please! : ) - Posted by Mike : SEMichigan

Posted by Mike : SEMichigan on July 18, 2002 at 21:32:12:

IF BK WAS CH13 THE HOUSE SHOULD ONLY BE LISTED AS A DEBT
STILL BEING PAID. IF ALL HOUSE PAYMENTS WERE ON TIME THE HOUSE SHOULD NOT BE A PROBLEM PURCHASING IF THE SELLER CAN AGREE TO YOUR TERMS. IN CH13 YOUR CREDITORS GET PAID PENNIES ON THE DOLLAR APPROX 200 PER MONTH SPLIT BETWEEN ALL FOR 3YRS. (LAWYERS AND TAX LIENS GET PAID FIRST AND IN FULL) THE REST SPLIT WHAT IS LEFT.

SO I DON’T UNDERSTAND WHY SHE SAYS SHE STILL HAS 30K IN BK COSTS. SHE IS STILL UNDER THE BLACK CLOUD OF THE BANRUPTCY FOR ANETHER 7 YEARS BUT IF CH13 SHE SHOULD BE DONE PAYING UNLESS THE 30K IS NEW DEBT NOT IN THE BANKRUPTCY.
I HOPE THIS HELPS MORE THAN CONFUSES YOU

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Re: First MOTIVATED seller - Help please! : ) - Posted by Karla - MN

Posted by Karla - MN on July 18, 2002 at 22:37:00:

I appreciate the feedback - you MAY want to shut your caps lock off, Jeff - I am sure that you weren’t yelling at me! : ) Don’t take that badly - I SO appreciate that you stepped forward to offer advice!

I don’t know much about bankruptcy, but is it possible that her debts were consolidated (but for the house) into one amt, and she is on a payment plan for that? She could be lying, I will find out what is all attached to the house when I do my title search tomorrow.

I did drive by the house tonight - it is worn down, but has GREAT potential, with a front porch and columns and great architecture! I am definitely getting this house! Is there a form that locks a seller in by offering consideration, without assigning a price to the house? I don’t want to let this slip through my fingers while I am doing the due diligence that I need to do as a newbie! I was supposed to meet with her Monday at noon to see the house (her suggestion), but I left her a message tonight saying that I wondered if we could meet earlier, as there wasn’t alot of time for us to get this matter settled before the end of the month…Hopefully that will get me in on Sat…

Thanks for the feedback - I can’t tell many people about this whole CRE thing until I prove that it CAN be done, and that I am NOT out of my gourd! I am sure that many of you had the same issues starting out!

Karla

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Re: First MOTIVATED seller - Help please! : ) - Posted by Emily (NC)

Posted by Emily (NC) on July 19, 2002 at 11:37:10:

Hi Karla,

Two short opinions…I’m new too.

For comps, talk to a realtor (you said you already did, but indicate you are still trying to get good comps) and tell them you are interested in having them sell it for you when it gets fixed up (which might be a very good idea) and ask them to run comps on it for you.

Second, You might consider some split funding with the seller, taking the house deed now and then paying her a certain amount (either $20K cash, or a percentage of the profits after your expenses are accounted for) after you resell the house. That might buy you some time in figuring out the value of the home and would mean you wouldn’t have to come out of pocket with cash.

You might have already thought of these things. I just thought I would add my thoughts. Emily