How to help this elderly couple in foreclosure - Posted by Ann in GA


#1

Posted by Rick, the Probate Guy on July 15, 2009 at 17:38:53:

Georgia - I have dealt with this exact situation perhaps 150+ plus times in the past. While I don’t believe you were suggesting that I’m not compassionate, I do think that your solution is somewhat naive.

One of the services that my company provides are Reverse Mortgages. There are essentially three primary lenders who form an oligopoly in originating approximately 95-97% of all R/M’s nationally. Virtually all of us broker these products at the retail level. Since a large part of our business is related to professional fiduciaries, public admins and conservators, we are at the top of the go-to heap for such services in CA.

However, I’ve never personally liked the product and believe that the benefits to a family such as the original poster describes are very limited; perhaps even misleading. The amount of proceeds will vary depending on the age of the borrowers, the property condition (fix-up holdbacks are common for deferred maintenance) and the kicker is that once you’ve ‘sold your soul to the R/M devil’, your choices and flexibility are essentially gone as there’s no future sale permitted without an incurable breach (balloon payment upon sale, death or extended absence).

We continue to offer the product as it does have its application, however these are limited and I have no problem telling a prospect that there are often better ways of addressing liquidity issues. R/M’s are not the great solution the promoters suggest.

So, back to square one: find out what the family can afford, what the other offsprings are willing to do, engineer an intelligent solution, get the family to agree to the plan, and stay transparent.

BTW, there’s nothing wrong with being compensated (perhaps WELL paid) for helping people. I’ve dealt with literally thousands of very sad cases that I seriously doubt well-meaning but unknowledgeable do-gooders would have made worse. I get to chose which files I charge and which ones I do for ‘for fun and for free.’


#2

How to help this elderly couple in foreclosure - Posted by Ann in GA

Posted by Ann in GA on July 14, 2009 at 21:38:35:

I own SFH rentals, helped with loan mods, and have done some short sales. So I have a little experience, but not a lot, and I am not a Realtor.

Here is the situation: elderly couple in foreclosure. FMV of home is probably 150K after repairs, and it needs LOTS of repairs. The balance on their loan is $9000. No, I didn’t leave off any zeros. There are back payments and penalties that bring the total payoff up to about $15,000. So obviously there is a lot of equity here.

They have both been ill, have mounting medical bills, yada, yada. They just really became too sick to monitor their own affairs and stopped paying the house bill, I think. The bank tells me a loan mod will increase their payment, so that is not an option. It is in review for a loan mod, but it won’t happen.

I have suggested they really need to sell the house, but they do not want to move. We know that if the home goes into foreclosure they will be forced to move and will not gain any money from the sale.

What can I, the investor, do to help keep them in their home and still make this a profitable investment for me?

I am thinking of buying it for the payoff amount and letting them live there rent free for as long as they can. But then I become liable for things…like the in-ground pool in the backyard that hasn’t been used in decades. They have an adult mentally challenged son living with them (don’t know their long term plans for him) and a motivationally challenged adult grandson. Free rent might bring other relatives calling. And then repairs/maintenance would become my responsibility. If I have no rent, I have no cash flow. I could charge a little bit of rent, maybe, but their payment history obviously isn’t all that great!

I do not want to take advantage of their situation, or even give the APPEARANCE of taking advantage. There is an adult daughter that lives in the community, but she has financial troubles of her own. I have not spoken to her yet.

What is the win/win solution here?

All creative ideas welcome!
Ann


#3

Careful, check state law - Posted by John Merchant

Posted by John Merchant on July 25, 2009 at 11:35:35:

My state (WA)has just recently enacted law that makes anybody who approaches an owner known to be in foreclosure that owner’s FIDUCIARY* and thus burdened by having become that O’s AGENT by law.

A number of states have enacted similar legislation so be sure and check yours before getting too heavily and belatedly entangled in a legal spider web from which there’s no easy way out.

*Fiduciary…check this out on Legal Dictionary and you’ll see what ugly legislation we have now in WA State.


#4

Re: How to help this elderly couple in foreclosure - Posted by Natalie-VA

Posted by Natalie-VA on July 16, 2009 at 16:13:14:

I’m with Kristine. The statement about not gaining any money from the foreclosure sale is simply not true. I realize that they want to stay in the house, but they just can’t. Make them an offer based on the condition of the house and refer them to a social services agency for assistance. Keep it business, and don’t get involved in their personal situation.

Please keep us updated.

–Natalie


#5

Re: How to help this elderly couple in foreclosure - Posted by Kristine-CA

Posted by Kristine-CA on July 15, 2009 at 12:12:14:

Why do you say that the owners would receive no money from a
foreclosure? They should receive excess proceeds and there should be
some if there is as much equity as you say. Is it your thinking that the
house would sell for only $15K at trustee’s sale? If so, buy at sale and
then you are free to control the property and help the family at the
same time.

My experience says don’t underestimate their abilities to work this out.
If they are housing a son and a grandson, I think something will work
out. They have social services available to them for the son and they
may have church members who are looking out for them as well. If
you think the couple is truly not mentally and physically able to
manage their affairs, then you should call adult protective services.


#6

Re: How to help this elderly couple in foreclosure - Posted by Gene

Posted by Gene on July 15, 2009 at 10:26:23:

Anything you do to help could be challenged in the future and made to look like you took advantage of them. Its just how people are. Today your are the best person ever…a few months later…your the greedy investor that stole their home. How quickly they forget the position they were truly in.

If it was me I would strongly suggest they look into a reverse mortgage…it sure seems like a reverse mortgage would be a good fit for these people. They could clean up their expenses and get monthly cash payments. The only problems is I am not sure how I would get paid for this…but I figure there are always other deals and in the small area that I work…its good policy to help folks.


#7

Re: How to help this elderly couple in foreclosure - Posted by DJ-nyc

Posted by DJ-nyc on July 15, 2009 at 07:10:08:

Ann,

I would meet with the Adult daughter to find out what she would like to do about the situation. Like Rick says be as Transparent as possible. I would probably try to get Power of Attorney if the daughter consents, and quickly work with the daughter to get them to an assisted living facility (very difficult to convince elders to move from their house, but creative real estate is very challenging) then work your deal. Offer them money after you add up the repairs and expenses, you may have to file bankruptcy on medical bills and don’t include the house in the Bk (chap 7). Be careful with these family matters, you may hear from family that you never knew where involved. The daughter is key to the deal In my opinion. I hope all works out…

DJ-nyc


#8

Re: How to help this elderly couple in foreclosure - Posted by Rick, the Probate Guy

Posted by Rick, the Probate Guy on July 14, 2009 at 22:40:48:

Possible plays:

Life Estate

Option to purchase

Xfer to Trust you as trust bene

Swap their house for affordable mobile and subsidize their expenses/space rent.

Etc.

Lots of possibilities here. Caution: Once one of them pass or become incapacitated, it will likely bring more “eyes” into the picture, especially for the adult Son. Could be visited by Adult Protective Services. Move slowly, don’t be too clever, and document the heck out of the docs and the signing.

Lastly, you might gain lots of creditability with very transparent transaction if view by others in retrospect.


#9

Re: How to help this elderly couple in foreclosure - Posted by Ann in GA

Posted by Ann in GA on July 15, 2009 at 19:41:15:

Thanks to everyone for all the great thoughts. I am well aware that I need to be VERY transparent if I do anything!

I will be meeting with them tomorrow and will present some options.

Rick, I do not have the experience with some of the solutions you mentioned, and don’t really have the time with this situation to figure them out. I know I need to learn more about all those things. How, for example, would an option to purchase be structured in this situation?

The lender actually suggested a reverse mortgage when I spoke with them, and I was going to suggest that as one of the solutions. While I do not know much about them, I have always perceived them to be limiting in options.

Of course, if they sell their home (to me or someone else) that limits their options as well.

I would like to think that the best solution is for me to purchase the home at the lowest cost and let them remain in their home rent free. When they leave the home, I would take possession. It could then be rehabbed and sold for a profit.

How can I limit my liabilities in this case? Can I specify in my lease who is allowed to live there and who isn’t and what repairs I would be responsible for?

I would be making an investment that may not pay off for many years and would provide no cash flow in the mean time. Would it be taking advantage of them to charge $100/mo to cover taxes/insurance and offset repairs?

It would be ideal if someone in their family would step up and do this instead of me. Part of my job tommorow will be to better assess the family situation. They are mentally able to make decisions–it is just their physical situation makes it difficult for them to carry out those decisions.

The REALLY difficult part is that I will be meeting with them in the home and all four of them smoke like chimneys. I left there the other day with such a headache I couldn’t think. He has emphysema and is on oxygen and they are all sitting around smoking. Scary.

I am still open to suggestions and advice!
Thanks!
Ann in GA


#10

Re: How to help this elderly couple in foreclosure - Posted by Georgia

Posted by Georgia on July 15, 2009 at 12:17:46:

Is there a reason that they didn’t try to get a reverse mortgage. I would think that they could get the mortgage and use a part of the funds for transition and living expenses. They just need a bit of guidance and compassion. I would find it difficult to capitalize on such a sad event.


#11

Re: How to help this elderly couple in foreclosure - Posted by Rick, the Probate Guy

Posted by Rick, the Probate Guy on July 15, 2009 at 22:22:33:

Sounds like your owners may not be long for this world. Consequently, I’d plan accordingly but give yourself an escape plan. Also, I’d tell them you need to be outside due to your own lung condition (meaning: “the smoke may be killing you but I don’t want it to kill me”).

Here’s one way to work the deal:

Agree to purchase the property and lease it back to them for a specified period of time, subject to them taking care of the property (may or not happen). Put property into a title holding trust with a 3rd party as trustee (not you, not sellers).

Your arrangement might be that you’re buying the property under-market in exchange for leasing back to them under-market.

Now the down side(s) include the fact that many people want to forget that they no longer own the property and will continue to act as if they still owners.

There are other issues that relate to the day when they’ll have to move, too. The big one is: what happens when one of them dies? You’ll have to deal with the family and all the relatives who want to re-evaluate your prior arrangement.

Alternatively, I think the better plan is to work out a deal with seller financing, relocate them to something more affordable (think mobile home) and make payments that will help them live out their lives with dignity in a less-stressful environment.

Why not post for purchase money mortgage/note structure ideas on the cashflow forum?

Hint: consider terms that will give sellers the cashflow they need but will let you control the note(s) should they need to cash out the balance early. This could be a deal for another day.