Is this a Risk? (Would you do it?) - Posted by Ron

Posted by Drew on January 31, 2000 at 18:59:13:

Hi Phil,

I have potential client with a $100K house, he owes $42K on it with $4K in back payments, fees, etc. He declared bankruptcy in '98 due to getting laid off and medical bills.

He wants to keep the house. . . so I was thinking I could have him deed to me, refinance it for $60K, and sell back to him on a wrap.

All this would take 6 months and he would have to keep his rent payments up in order to buy back from me. Any thoughts on this? Am I headed for trouble? Your help is appreciated.



Is this a Risk? (Would you do it?) - Posted by Ron

Posted by Ron on January 31, 2000 at 09:47:54:

I found a property (3 / 2 / 2) and the owners are 5 months behind and forclosure is just a heartbeat away. I told them that I can get their payment current and would need them to deed me the house. They would like to stay in the house (They all do) and I would like to know, if it is a smart move to allow them to remain in the house as renters under a lease option agreement. They have very little money for consideration or they would have brought their mortgage current on there own. Whats the best approach on this issue? The numbers are all good on this property, just the risk of the present tenants are my concern.

Thank You in Advance


Everything worth having involves risk; and yes I would. - Posted by Bill Gatten

Posted by Bill Gatten on January 31, 2000 at 16:46:55:

You can place property into a PACTrust with them (the current owners), which process incorporates a lease agreement (with them or someone else) without an “option to purchase.” Under the circumstances any option for them to "re-acquire ownership might be risky in terms of their later claiming equity to thwart your eviction efforts.

If there is equity in the property, or if you are in an area where you can reasonably expect some…go for the PACTrust™. It will keep you out of debt and keep you out of trouble and enable you to replace them real fast if they screw up.

  1. First, you put the property in a trust in their names (makes insurance a cinch and accomplishes a ton of other benefits including DOS compromise, alert and enablement, that a trust in your name won’t do…and you lose nothing in the process…a power of attorney can give you full directive control).

  2. Next, you take an assignment of beneficiary interest in the trust (e.g., 90:10 in your favor, with an agreement from them to forfeit their interest in, say, 5,6 years…this avoids reassessment for property tax, documentary transfer fees, etc.)

  3. You then lease to them on a straight rental: or on a triple-net lease basis (the latter will afford them the same tax write-offs they have now, and would justify their paying you more money per-month, while saving them money at the same time (i.e., over what they’d pay after-tax for just renting).

At the end, you will have either agreed to share proceeds on sale or re-fi with them–or not (you can, if you choose, have an agreement to simply buy out their interest for $100 at the time, and not share anything with them).

The key here, Ron, is having enough money to bring everything current, and enough to make payments for a couple months should they ever default…while you’re replacing them. Personally, I would have them begin building a Contingency Fund immediately as a part of their monthly payment, so that if you did have to evict them, you could do it with their money instead of your own.

Remember that even though the trust remains in their name, as does the loan, they do not own the property. They have relinquished 100% of all legal and equitable title to the trustee upon consummation (creation) of the 3rd-party land trust.

In So. Cal. when I do these, I honestly don’t worry much about how much equity a property has…the market has never let me down yet. If there’s none at start, and I have spent nothing, I don’t care much.

Bill Gatten

Re: Is this a Risk? (Would you do it?) - Posted by Mark (SDCA)

Posted by Mark (SDCA) on January 31, 2000 at 14:14:39:

Phil is right on the $. If there is no equity, I would pass. However, if there is equity, what do you have to lose? It’s a lot easier to evict than foreclose. You do have exactly the right question though. If they can’t/won’t make the mortgage payment, what makes them think they can/will make the rent payment? Maybe it’s just me but I think I would scramble quite a bit more to make MY mortgage payment than I would to make my landlord’s.


Re: Is this a Risk? (Would you do it?) - Posted by phil fernandez

Posted by phil fernandez on January 31, 2000 at 10:57:22:

Joe Kaiser does these types of deals all the time. Joe has a great course How To Totally Dominate Your Foreclosure Market. In the course he explains the procedure to acquire a house as you describe.

If there is good equity in the house I would not have a problem getting the deed and renting the house back to them. Find out how they got behind in the first place. Can they keep their rent payments to you current. What does the rest of their credit look like.

How bout instead of giving them an option to repurchase, just rent to them without the option. If they fall behind again it will be easier to get them out of the house through an eviction.

Re: Is this a Risk? (Would you do it?) - Posted by Bronco,NC

Posted by Bronco,NC on January 31, 2000 at 10:06:35:

Just a thought, what are you going to do when they get behind on their payments w/you?

I personally wouldn’t do it unless I could get them to leave. You get them current on their payments and they deed you the house,but the same problem still exist…them, now everything is in your name.

You may have an ugly mess on your hands if you let them rent and they don’t pay, you try to evict and they won’t leave.

I would pass on this one,

My .02