How do I renegotiate this land contract? - Posted by CharlieC

Real Estate Investing
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Posted by Michael Morrongiello on April 15, 2000 at 18:40:26:

Charlie:

Betty may be current at this time BUT I can betcha that when that balloon payment comes due she will have a hard time financing the property that is apparently over encumbered with debt.

This is the issue I would Harp on with the contract holder. Make him look in the mirror and see that the balloon payment in all probability will never get paid. What will he do then?

Let him know that IF the contract does go into default at any time its “value” becomes greatly diminished. It might be best to restructured now and then even “cash out” of the contract by selling it to a note funder than by holding the cards and playing the hand out.

Bottomn line is that you cannot force the Holder of the contract to renegotiate it if they choose to ignore the warnings. However these are the areas that I would “pick” with him over.

Michael Morrongiello

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How do I renegotiate this land contract? - Posted by CharlieC

Posted by CharlieC on April 15, 2000 at 12:45:10:

The scenario:

Oscar Owner sold a single family (2 BR, 1 BA, No Garage) rental property to Betty Buyer via a Land Contract about 2 years ago for $35,000 with $4000 down and the balance to be paid at $227.47 per month ($31,000, 8%, 360 months, 5 year balloon - due Mar. 31, 2003).

Betty is having trouble finding good tenants to rent it to (it’s in a marginal but not horrible area), has left it vacant since about January, and wants to sell. Oscar, who is at or close to retirement, doesn’t want the property back (according to Betty). If fixed up for $1200 +/- (primarily cosmetic, decorating, etc.), might be worth $25,000 retail (though owner financing will probably be required to get a retail buyer and could conceivably go for $35000 with those seller financing terms - after all, Betty paid that). Betty had rented it out for $325, though with strong management and some time to get what few half-way decent tenants might want this area, it should rent for about $375 or $400.

I want to meet with Oscar to see if he will renegotiate. What are some approaches to use on Oscar to get him to renegotiate a better price and better terms on the land contract to make this deal doable? What terms do I need him to provide for this to be a good deal for me?

I know that if he were to take $12000 cash today or remove the balloon, lower the interest rate, and lower the principal balance they would all be helpful. But what logic can I give him that will be compelling - or at least reasonably strong other than he doesn’t want to put Betty in the position of going belly up and him becoming a manager again (which is a weak argument since Betty is not behind and is paying him regularly).

Thanks for your thoughts on this.

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Re: How do I renegotiate this land contract? - Posted by Janel Dooley

Posted by Janel Dooley on May 02, 2000 at 22:14:37:

We purchased a home when we were 25 and had an excellent credit rating. We still do. We were stupid however, in agreeing that we could not pay off the mortgage for 10 years. We have 3 years to go but the neighborhood is REALLY changing. We have children now & want a better neighborhood. What can we do to try to get out of the contract now? We can’t afford to pay the remaining interest of approximately $15,000. We plan to see a real estate attorney but we need all the info we can get. HELP!

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Re: How do I renegotiate this land contract? - Posted by JohnBoy

Posted by JohnBoy on April 15, 2000 at 22:38:51:

The real question here is how savvy of an owner Oscar Owner is. According to Betty Buyer, Oscar Owner doesn’t want the property back. Of course he doesn’t want it back! Betty Buyer is has been making payments on time, why would he want to take it back??? I’ll bet a dollar to a donut that if Betty Buyer wasn’t making the payments then Oscar Buyer would want it back in a heart beat to sell to another buyer with $4k down and risk how they make the payments. As long as Betty Buyer is paying on time, Oscar Buyer is sitting on a sweet deal! He has no reason to negotiate on anything! Once the balloon comes due, Betty Buyer either gets a new loan or Oscar Buyer steps in to suddenly show an interest in wanting his property back!

Don’t be fooled by what Betty Buyer says the owner is or isn’t interested in. It sounds like Betty Buyer has had it with this property and just wants out! She has probably tried to get out of the contract with Oscar Buyer, but since she’s been paying on time every month he’s not going to just turn into Mr. Nice Guy and let her walk away that easy! After all, he’s collecting payments on time every month and he’s obviously sold the property for an over inflated price. Why should he just roll over at this point?

Solution!

The contract has a balloon due in 3 years from now. Enter into a lease option with Betty Buyer for the balance of the balloon payment due in 3 years. This gives you 3 years to make money on the deal and get the property sold.

Since Betty Buyer is so fed up with this liability on her back and tired of making payments on a vacant property because she’s tired of dealing with dead beat renters you might even be able to get the deal with her absorbing part of the contract payment!

Miss Betty Buyer, I understand your frustrations and all with this property. I’d really love to help you out and all, but because of the circumstances and all with where this property is located, this just doesn’t pencil out as an affordable and worth wild deal for me to get involved with.

However! Since your already maintaining the payments every month and are keeping current with them, maybe there is something we can work out? Your paying $227.47 per month now. If was willing to agree to lease the property from you for $127.47 per month from now until your balloon payment comes due and you were to give me an option to buy the property for the amount of the balloon payment due, would you be able to continue to swing paying out at least a $100 a month towards this while I take over everything and pick up the difference until I get this thing resold???

You never know until you ask! It sounds like you got a motivated don’t wanter here. Work on a deal with her and forget the old man owner Mr. Oscar Owner. You can meet and talk with him to see what his motivation is, but it sounds like he’s in full control of this deal right now since Betty Buyer is keeping up on the payments. Until that changes, Oscar Buyer has no reason to negotiate anything!

Just my thoughts on this one.

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Re: How do I renegotiate this land contract? - Posted by Jack Beam

Posted by Jack Beam on April 15, 2000 at 19:38:25:

Maybe someone should join the human race and take responsbility for their actions.

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Re: How do I renegotiate this land contract? - Posted by phil fernandez

Posted by phil fernandez on April 15, 2000 at 18:40:40:

I’m not sure if you really should own this property. You mention a marginal area. After you buy the property won’t it still be in a marginal area. Sounds like its tough to get good tenants. Why would that be any different when you take over the property. I like to spend my time looking for properties in areas where people want to live.

This might not be what you want to hear, but that’s my opinion.