I'm out of my comfort zone!! Need help!! (Long) - Posted by Mike O

Real Estate Investing Real Estate Law
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Posted by Ben (NJ) on March 16, 2000 at 19:48:17:

if you buy the mortgage the bank is OUT. They cannot continue the foreclosure when they sold you the note. The lawyers who started the foreclosure will be finishing it on YOUR behalf. From what you’ve said it sounds like a good deal. A full title report is crucial however. I would want to know what senior liens there are, if any. There is a website I use called superiorinfo.com which provides you with an instant upper court search for NJ. You may need to subscribe though. If you know the property owners name you can instantly find out federal liens, state liens, judgments, bankruptcies and foreclosures. If everything checks out then at sheriff’s sale you can open the bid at $40,000, then anything bid higher than that is gravy to you. If the comps are that high there may be some action. If there are no other bids you just got the property for $40,000. I am in NJ
so if I can help anymore e-mail me privately.

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I’m out of my comfort zone!! Need help!! (Long) - Posted by Mike O

Posted by Mike O on March 16, 2000 at 17:16:27:

Hi all,

I called on a property and got a lead from the agent on another property. Here is the deal:

4 units/2 stores
Bank mortgage 160K
Vacant-rehab was started, about 60% finished-owner is in foreclosure
Still needs about 50K work
Comps 175-180K
The deal is in New Jersey

Now my situation,agent told me the bank is willing to sell the mortgage for about 40K cash. I made an offer, agent told me the offer was no good, the bank was selling the mortgage, not the property. Agent stated how the deal will work, I purchase mortgage, subject to inspection of mortgage docs. He will then put me in touch with the lawyers that are foreclosing, and they will tell me how much longer it will take to foreclose on the property. The bank will not bid at sheriff sale. There are no tax liens, and I am getting a preliminary title search done.

Now this is where my comfort zone is out the window, if I understand this deal as stated.
If I buy the mortgage, the bank will complete the foreclosure, drop all legal fees. Property will be subject to bids at sheriff sale.
I called some investors to do a quick flip, I have an interested investor for 65K. But I cannot assign what I don’t control.

Now the questions
If I own the mortgage should I let the bank continue with the foreclosure? They will be foreclosing on the previous owner. Can I flip the mortgage to the investor, and let them go to the foreclosure process with the lawyers?
Who will set the opening bid price at sheriff sale?
Do I have to buy the mortgage, foreclose, then flip? Or is there another way to go about this. The bank will close in 30 days (with me), Can I assign the mortgage at that time?
I have talked to my brother who is a tax assessor for another city, and he gave me all the worst case scenarios, leins, insurance, fire, and the like.
This is my first attempt at a wholesale flip, I can get the cash, but need some guidance from anyone who has done a deal like this before. I’ll be talking to my lawyer over the weekend to see what he thinks.
Thanks in advance for any help, pro or con.

Go Get’em
Mike O

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Re: I’m out of my comfort zone!! Need help!! (Long) - Posted by Jim IL

Posted by Jim IL on March 17, 2000 at 17:52:32:

Mike,
I have never done a deal like this, but some things do come to mind when reading your post.
What about the current owner?
What if you tell him/her that you can help them get out of the property without a forecclosure on there credit?
Will they give you the deed?
If they will, then get it, buy the note and sell the place somehow.
That is what I’d do.
Then you are essentially buying the property at a huge discount, provided the comps are correct.
Which incidently scares me aslo.
A mixed use commercial building is hard to nail down on value.

Good luck and please let us know how this deal goes,
Jim IL

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What your brother forgot to tell you - Posted by Bud Branstetter

Posted by Bud Branstetter on March 17, 2000 at 10:31:48:

Liens can be discovered by a title check. Fire risk can be dealt with by forced insurance. What can’t be covered is city liens or fines that are in the works though unrecorded. Check the local code compliance office. The other problem is bankruptcy of the owner. Even after the foreclosure sale the court can set aside the sale if there might have been assets that could be used to pay other creditors. Even a chapter 13 allows them 5 years to restructure and make payments on what is owned. The suggestion was made to find the owner and negotiate for the deed. While there is the no guts no glory approach do so with a little knowledge of the persons financial and emotional position.

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Re: I’m out of my comfort zone!! Need help!! (Long) - Posted by Ben in Ohio

Posted by Ben in Ohio on March 17, 2000 at 07:30:05:

You get the mortgage but not the deed? Hmmm. How long does foreclosure take in Jersey? Can you find the owners and negotiate for the deed?

Are you protected if the place burns down?

Do you owe anything to the foreclosue atty prior to sale?

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Re: I’m out of my comfort zone!! Need help!! (Long) - Posted by Ben in Ohio

Posted by Ben in Ohio on March 17, 2000 at 07:27:34:

You get the mortgage but not the deed? Hmmm. How long does foreclosure take in Jersey? Can you find the owners and negotiate for the deed?

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Re: I’m out of my comfort zone!! Need help!! (Long) - Posted by JPiper

Posted by JPiper on March 17, 2000 at 01:20:59:

Sounds like an interesting deal. The basics are that you step into the banks shoes. You can either assign your note, or you can complete the foreclosure?.if you get the property back you can sell.

BUT, first things first. You need to verify the value of the property. Four units and 2 stores is not an ?easy? property to comp?.be careful. I?d be surprised if you ended to in as tight a range as you mention, $175-$180K. Mixed use presents possible appraisal and financing issues?.keep that in the back of your mind. I?d love to see how someone arrived at $180K?.bet they didn?t have an exact comp when they did it?.just my guess.

Second, you need to verify two things concerning the rehab?..the work that has already been done, and the work that remains to be done. What are the odds that a guy in foreclosure either did, or had, competent work done? Whether the work is 60% done sounds like an opinion. Get someone who is highly qualified to inspect the work that is complete?.there are hundreds of ways to do work incompetently. Following another contractor is never easy. I?ve taken over projects in the past and had to tear things out?.just make sure you look closely.

Once you have the verified the two above details, work your deal backwards. Back out all the remaining costs. Include in this an estimate of the legal costs, future carrying costs, selling costs, and your profit.

On the surface, $40K sounds like a great deal. As mentioned below, you finish the foreclosure with your attorney. You might want to question your attorney extensively regarding what other moves the debtor ?might? make?.try to factor in some of those potential costs. At the sale I wouldn?t open bidding personally at $40k. I?d rather take the property back, and THEN sell?.I think you?ll do better in terms of your price if you do it this way. Some buyers are not comfortable with the legal process?and therefore you may have more difficulty producing bids. I?d take it back rather than assign the note?.unless you?ve got someone that will do this instantly.

Good luck with your deal.

JPiper

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Buy the mortgage! - Posted by PBoone

Posted by PBoone on March 16, 2000 at 22:00:44:

There are many companies that will purchase the defaulted papers from you. If you want some assistance on this call me 503-668-0406
Pat