Posted by Bill K. (AZ) on April 24, 1999 at 15:38:13:
I’m in the middle of closing on a preforeclosure myself. The seller just wants out, but I plan to throw a few thousand his way IF I can get FMV fairly quickly. However, my offer is just to take over his deed of trust “subject to”. If the lender won’t allow you to take over “subject to”, you may have to assume the loan or fund $103K through another source. Using a trust to take beneficial ownership may work as well.
Your estimate to reinstate the loan is probably close based on what you’ve told us here. I would also get access immediately upon acceptance of the offer. This will allow you to assess repairs, and you might be able to start some of the repairs while the seller is still there.
Regarding offering the seller more, don’t do this in the offer to purchase. If you really want to offer her more, explain that if you can sell it quickly and at full price, you’ll be happy to share a small amount with her. It won’t be binding if not in writing, but you don’t want to tie your hands. Here’s why…
If the property does not sell quickly, you may need to list with a realtor at 6%, or $8,400. In addition, you will have holding costs of $1,210/month until sold. Assuming 3 months, you’re looking at $3,630. If you have to find new financing, you could be looking at loan origination fees of 1% to 2%, or $1.000 to $2,000. Total costs to you under this scenario, over $13,000 PLUS closing costs. At 6 months holding, over $16,000 PLUS closing costs. If you end up holding for a while, you can see that you can quickly eat up your profit leaving little, if anything, additional for the seller.
If you decide to let the seller stay, you should consider charging rent from the date of close to her move date. I understand that she might not have a lot of money since her property is in foreclosure, but you’re already doing her a favor by keeping a foreclosure off of her credit record.
Write up an offer, get it signed, open an escrow and put this one in the bag. I hope this helps.
Best of luck to you.
Bill K. (AZ)