I have been considering the subject to approach. It reduces the risk of the current owner creating encumberences on the title in the future and with this much money from my pocket on the table, I would not do this anyother way (except a refinance.)
I must fix this place up before resale or L/O since the owners abandoned the property with several cats and large dogs locked in for three months. A neighbor just kept feeding and watering them. Kibbles and bits and sh*t EVERYWHERE. These folks think there is some equity left but between the animal damage and the 10k they finaced out 6months ago, the equity and then some,is gone.
I am going to approach the lender and if they can’t be proactive my offer will be a subject to deal.
SF Ranch 3bd, 1bath, CAC, no garage, on a crawl, 1 acre lot.
Current financing: 1st Mortgage of 104k @ $870 month PITI (an ARM) 2 payments behind.
After Fix up FMV: 125k
FMV before fixup: 90k
2 payments behind: 1740
Fix up costs: 7k - 10k (carpet,paint inside and out, flooring, kitchen, bath. No carrying costs figured into this.)
Property is empty and owners are very motivated. I have them sold on the L/P idea but, after getting the bigger picture, I am not!! (relax, nothing is signed).
This home would rent for between $1150 to $1300 a month if it were cleaned up and in good shape.
The exit strategy on this would be a great L/O with 5k consideration and 1300/month payments with a strike price of 140k and a three year lease. I just can’t find a good entry strategy, to much up front costs!
Would a lender recognize the problem the note is in and allow me to buy the loan at a discount? Anyone have an idea on a entry strategy for this situation.
Re: Good luck solving this problem ownership? - Posted by B.L.Renfrow
Posted by B.L.Renfrow on May 14, 2000 at 15:41:11:
I am not a big fan of doing L/O with a defaulted buyer…much better to get the deed, in my opinion. I like sandwich L/Os, and have done a number of them, but when you’re dealing with a financially-distressed seller, I think it makes a lot more sense to structure a deal where you get the deed up front.
How about taking it subject-to the existing mortgage in a land trust, then selling as-is via a land contract to an owner occupant? If you offer financing, you should be able to sell as-is for at least $110k, and boost the interest rate a couple points to your buyer. That way, you’ve got the buyer’s downpayment of $5500-11,000 (less the $1740 in mortgage arrears), plus monthly cash flow, and you don’t have to worry about any repairs.
Alternatively, if you have the $7-10k available for repairs, go ahead and do them, then sell for $125-135k.
You could go the L/O route to your buyer, but if you don’t do the repairs, you’d have better luck finding a buyer willing to do the work if they are a buyer, rather than a tenant/buyer.
Mark, how about a straight forward approach. Go to the bank that has the loan and ask if they would call the loan if you took over the payments? Go armed–show them what you want to do with the property, show them with pictures the condition the property is now in, show them pictures of other rehabs you have done. Ask them if they want to go through the expense and hassle of a year long foreclosure while the property deteriorates or whether they want to get their money back and keep the property off the ‘non-performing asset’ list.
Some banks will say no–they are the ones you don’t want to deal with anyway. A few say yes, and you can probably pick up more deals and financing from them in the future as you build a relationship with them.
The house is in good condition but needs somework to get in a condition for resale. The aggressive cleanup is due to the extreme amount of animal waste in the home. They ran free in the home for three months while the home was abandoned. The minimum expenses would be…
Cleanup, paint, carpet 3500
Back payments 1740
Carrying costs 870
Total: 6110
The other 7k quote included new kitchen and bathroom fixtures. The kitchen is workable but ugly. I figured, while I had a dump box parked outfront, I might as well yank out the old kitchen and put in a new one.
I get your point, keep it simple and do only what you need.
Thanks,
Mark