I agree with Brent.Your only hope is to short sale the second. Do you have the funds to buy the 2nd at a discount though? Assuming you buy the 2nd at 30 cents on the dollar. You still have to come up with 10K to buy the 2nd. The $2700 to catch up the first. The 5K to fix up the property. The $1000 to have the seller move out. That’s add up to roughly 20K initial investment. You are now at 81% LTV at best. Not bad if you want to live in the property, but as an investor , those are not good numbers.
Buy at foreclosure at steps maybe, but then there is another set of issues.
Selling for $159,000 (about $1,000 more than they owe)
FMV: $169,00 +/-
What can I do to help them? I know there’s not much room here, but they need out by Sept. 1. How do I do a short sale? I know I need a power of attorney and release from the seller to talk to the lender… what else? What do I say to the lender? Do I tell the seller that I’m negotiating with the lenders?
What kind of an exit strategy should I use? I was just thinking flip or assign.
I see is to let it foreclose and buy it at the courthouse steps. The 2nd lienholder will get nothing and you could possibly end up with a deal. As it stands, IMHO it’s not even close to a deal.
Posted by LeAnne-WA on August 08, 2003 at 20:41:23:
I talked to the homeowner again just now and she agreed to deed the house to me and keep the loans in her name if I can make up the back payments which at this point are about $3,000. She will give me power of attorney and the release forms. What else do I need? Should I proceed with this deal?
Here are the numbers again:
1st: $124,199.71 payments $892.41 - 6% int. (refinanced a few months ago)
2nd: $34,177.57 payments $457.96 - 15% int. (taken out 3 years ago)
total: $158,377.28 owed on both loans
Asking price: $159,000 plus $3,000 to make up back payments plus $1,000 for them to move
Appraisal: $159,000 - $165,000 (after about $3,000 - $5,000 in fix-up - paint, carpet, etc. which the sellers have all materials for and I will just need to install/complete.)
The area is seeing about a 5% appreciation increase per year.
My exit strategy:
Probably will sell to an owner/occupant on a wrap or a lease option with hopefully about $10,000 down from my buyer. What do you think? Am I on the right track with this? Does anyone have any suggestions or tips? Is there anything I’m missing?
Re: about the only buy method - Posted by LeAnne-WA
Posted by LeAnne-WA on August 09, 2003 at 12:35:23:
The seller has gotten a notice of default from the lender on the 2nd. They will miss this months payment making it 3 months behind. They’ll just walk away and give me the deed if I can make up the back payments. I had actually planned to live in it myself when I first started talking to her because I don’t think I could rent it for enough to cover the payments. But for me, it’d be fine. Then I just started thinking of other ideas in case I don’t move in there and wondered if a short sale would be possible once I’ve gotten the deed.
What is your opinion? Do you think the 2nd going into foreclosure in the next few weeks changes anything?
LeAnne
Posted by Brent_IL on August 09, 2003 at 11:55:38:
This sounds like Ron’s description of a California deal sans appreciation. I can’t think of a reason why the first would jump on a short sale. Can you get a new high LTV first in your name to lower the payments and give you room to exit?
The only other thing that I see to do is to work on discounting or re-writing the second. But payments arrears would have to accumulate for the second to feel that their loan was in jeopardy. The high payments preclude a L/O or L/P. No reward for the risk. As Fred said, 5% isn’t all that, nor is it assured. All of the gain in this scenario is for the seller who has nothing to lose.
Recall that it isn’t no down, or low down, or appreciation that makes a deal. It is the synergistic effect of all factors.
If you keep the loans in her name, it is not a short sale. You are buying “subject to”. According to your numbers, you are pretty much at 100% loan to value. You also have to worry about the D.O.S. clause. If you take 10K down, the amount owed to you is less than the amount owed to the bank. How will you make up the difference? You mention there is a 5% appreciation, but with rates going up there is a good chance that home values might come down in your area. You never know.
Lease option possibility? Check the rental rates in your area.Are they enough to cover the mortgage plus your profit?
Short sale? Now I’m not an short sale expert, but I’ve read that a short sale depends on the condition of the house, the financial state of the buyer, the bank’s willingness to discount their loans. How about the tax consequences to the seller. Have you done a title search, to make sure there are no other liens such as back taxes?
I see no deal here at all Le Anne. Remember that in most cases you must buy lower than the going fair market value to even consider a deal. Per your numbers above, the cost of the deal will be $158K plus 6K equals $164. There is no profit and therefore no deal. Walk away. Another deal will come.
For the second to foreclose, they will have to payoff the first. Rather than shortsale the second and satisfy the first, I would go to the sheriff’s sale and possibly bid on it. Do you have the resources to do that? Otherwise, if I were that hot after a property, which by the #'s, It’s an ok deal, not great, I’d talk to the 2nd and see what they want for it. Be careful of the desire to acquire.
Re: HELP! Poss. short sale - Posted by LeAnne - WA
Posted by LeAnne - WA on August 09, 2003 at 12:19:34:
I just got an email this morning from the seller saying that they will miss the payment this month on the 2nd and that will make it 3 months behind. (the first is still months behind) They’ve received a notice of default already on the 2nd. Will this possibly change the scenario? Can you give me any other suggestions?
She has already agreed to sign me over the deed if I can pay the back payments. They are willing to walk away with nothing.
Thanks.
LeAnne
Posted by LeAnne-WA on August 09, 2003 at 12:26:53:
Yes, it is pretty much 100% LTV.
I got an email from the seller this morning that they will miss this months payment on the 2nd making it 3 months behind and they’ve gotten a notice of default. The lender will begin foreclosure proceedings at the end of the month. This is why I’d like to get it subject to and then work out a short sale, at least on the 2nd. They are willing to just walk away from the house if I can make up the back payments. Do you think this changes anything?
Thanks!
LeAnne
Posted by Brent_IL on August 09, 2003 at 12:31:15:
The sellers have nothing. They are not doing you any favors
The second lien holder is the most vulnerable. The costs of sale will wipe out most of the loan?s value. I’d offer a deep discount. That’s all I’d do. You don’t have a lot to work with. I really think you should save your $3,000 and keep looking.