If he couldn’t/wouldn’t pay the mortgage, why do you trust him to pay you now, on time? OK, so now he’s got a job - will he keep it. Does he make a habit of losing jobs or was it a “one-off”? Check it out.
Selling back at $42k seems a little low … being that it’s going to cost you atleast $34k to bring the mortgage current not including closing costs.
When is this guy going to be able to qualify for financing to cash you out? Have a good mortgage broker check him out and let you know if he can qualify and how much for. You don’t want to wait forever for your cash.
Here is the deal. Homeowner is in forclosure, he owes a total of $31K on two mortgages that are both over 15 years old. I have not pulled comps yet, but the tax appraisal is $52K (%80 of neighborhoods fmv). My guesstimate of value is in the $60K range. He says it will take about $3K to bring both mort.'s current, payments total $405 and he wants to stay in the house (he mentioned renting it from me). I need to act quickly before more investors contacts him.
I have recommended to him that I will bring his mortgage current, and allow him to rent-to-own the house back at $505 per month (he is working now), and he can buy the house back in the $42K range. I also offered him a $2K for him to find a nice apartments somewhere. I tried to set a time up with him to meet, but he got cold feet and said that he wants to talk to the mort. co.'s to see what his payoff is and find out his options.
Do you know if the 2 mortgages are conventional or privately held? The first thing I would do is contact the mortgage companies/lenders and see if they are willing to discount for a full pay-off. For example : If there was a 2nd owed for $10,000, I would offer them $5,000 in full for their pay-off. If they don’t act to enthused about your offer, explain that the property is going into foreclosure and they might not get anything. If they are the ones foreclosing, tell them you can save them a lot of cash and heartache. If they except, you just made $5,000. HINT : If they ask if you are buying the house, just tell them it depends if they will discount their mortgage. Tell them you only have so much cash available. The reason for this is if they think you are going to buy the house anyway, they will just sit back and wait for their loan to be paid off the old fashioned way. If they go for your offer, you just have them send a letter to the title company where you are closing, which explains that they will take $5,000 in full for their mortgage. If you have any questions with this, just ask your closing agent what you need to do. You’re probably asking yourself how am I going to come up with this money plus enough to either pay off or reinstate the other mortgage. You said the property was worth $60,000. Contact hard money lenders and get a loan for 70% LTV. The reason I say ‘Hard Money Lenders’ is because they will lend money based soley on the market value of the home. If you tried conventional financing you will still have to come up with down payment money plus jump through all kinds of other hoops. You could borrow enough to pay off all mortgages (even without the discounts; although if you can, so much the better for you) plus you are buying for 0 down instead of forking out $3,000 for back payments plus $2,000 for the owner to move. You could borrow $42,000 and pay off all mortgages, give the seller $2,000 to move on and put $8,000 to $9,000 in your bank account as “fix-up costs”. If you don’t want to borrow that much then simply borrow less. You could then turn around and sell the house for $60,000 with $5,000 down and carry the $55,000 balance for the same amount of time as you borrowed the $42,000. You have pocketed around $14,000 (minus any carrying or fix-up costs) plus you have $13,000 coming on contract. This can be done very easily and fairly quickly. I’ve done it. The only part I had a problem with was getting to keep the money over and above the mortgage pay-offs. Each time I’ve done this I’ve worried and each time after explaining the money was for repairs or fix-up there was no problem. I seemed to have worried each time for nothing. I always thought it seemed to easy. After a while I learned that the investors are in the business to make money. A lot of them don’t really care what the money is used for as long as they are adequately protected (Lower LTV the better and usually they want to be in first position or maybe second with low LTV). Under no circumstances would I allow the current owner to stay in the home. It will only complicate your profit making ability on this home. Do whatever you have to (within reason) to get the owner out and on to a new apartment or whatever. If you remember to make this a win/win situation for both of you, the possibility that he will sell to you on your terms becomes much greater. Talk to him…There’s got to be something you can do or buy to make him happy. These are just my ideas, but maybe you can make use of them. Good Luck…Dave
Do You Play Poker? I’d Hold! - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on June 18, 1999 at 19:45:17:
Kevin,
I agree with Redline. I wouldn’t let the seller stay in this home. Offering him $2,000 to leave is good.
Since he’s talking to you, he doesn’t need more motivation. Let him stew a while over your offer. Don’t worry about going back to offer something to “make him more motivated”. He doesn’t have the luxury of “getting cold feet”. He’s in a pickle, and his options are limited while the clock is ticking. Once he understands this, he’ll be calling you back.
You’re offer is good considering the situation. Sit tight! Give him a chance to digest it. It might get accepted, or countered.
You may want to talk to a good attorney on the subject. South of the Red River we have a stong homestead law and judges are homestead friendly. If you rent/sell back to someone for more money the court can interpret that as a loan. It then becomes usurious and you lose it all.
I just recently foreclosed on a small 2nd for an investor. The lady works for a law firm and had an attorney represent her to try and stay in the house while she accumulated the money to buy back the house. The attorney’s language in his agreement was not acceptable. We countered with language that it was not her homestead but that she was a tenant at sufferance. Also that she was not making payments but could buy back at a lump sum.(she must make the payment on the first she took out). We’ll find out in August if she wants to fight us or payup.
I’ve heard of people doing puchase lease/sale backs without a problem but I have also heard the problems, which why here it is not the best idea.
Do You Play Poker? I’d Hold! - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on June 18, 1999 at 11:51:50:
Kevin,
I agree with Redline. I wouldn’t let the seller stay in this home. Offering him $2,000 to leave is generous.
Since he’s talking to you, he doesn’t need more motivation. Let him stew a while over your offer. Don’t worry about going back to offer something to “make him more motivated”. He doesn’t have the luxury of “getting cold feet”. He’s in a pickle, and his options are limited while the clock is ticking. Once he understands this, he’ll be calling you back.