L/O turned into flip, how do I protect interest? - Posted by Scott

Posted by Gerald-DC on March 05, 2002 at 15:25:52:

If the FMV is 150 and the mtg is 138,000 and there is another 10K in arrears, I don’t see how you can sell this property and make money now unless you get an assignment for a few thousand dollars. Your seller would have to bring all of that 4K to the closing.

Another option is to negoiate with the bank and try to do a short sale.

If there was more spread here, you may have been able to get the seller to give you a note for your profit. That is, have the seller give you a note for say 6 or 7K, record the note and you are now a second mortgage holder. Then, at settlement, you would get paid after the first mortgage has been paid.

Obviously, the second note scenario requires a great deal of trust between you and the seller, but it can work because I did it on a property that like yours, started out as a lease/option but turned into a rehab.

After the seller gave me the note, I recorded it, but I didn’t have him make any payments and I retired the note for the less than the amount due when we settled.



L/O turned into flip, how do I protect interest? - Posted by Scott

Posted by Scott on March 04, 2002 at 11:27:33:

Have a house up for L/O. First looker wants to buy it now and has been pre-approved by lender. Advertized it as L/O. 5% down and take over payments of $1200 Mo.

Heres the rest of the story.
Market Value: $150,000
Balance on 1st: $138,000
Arrearages: $10,000
Owner has: $4000
Buyer has: $6500

How do I make any money on this quick sale?
I have an option for the balance of the mortgage.
Should I just sell my option?
Should I take $4000 from the owner?

Any ideas are welcome. I am meeting with buyer and their lender today at 5pm mountain time. Calls are welcome also.
Toll-Free at 888-775-TEAM / 8326


Re: L/O turned into flip, … protect interest? - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on March 04, 2002 at 11:50:17:

You don’t tell us what the price is you are selling it to the new buyer for, and I don’t know what you mean by the owner has $4k.

You could assign your option to the new buyers for whatever profit you want, if they are willing; and have the money for the assignment and their down payment with the mortgage company doing the financing of the deal.

If the buyer have your $4k you want for the assignment, and maybe a 3% down payment for their loan of $150k which is $4.5k; you are at $8.5k. Your post only indicates they have $6.5k and we haven’t discussed closing costs yet for the buyer on this assignment.

The balance of $138k is your option, but does that include you catching up the $10k in arrearages? If so, you have an option to buy for $148, a home worth only $2k more than your option. Who pays closing costs on your option agreement?

Assignment is the cleanest way if the buyers have the cash to pay you and still have money for their down payment since they want to buy now.

If they don’t want an assignment, or don’t have the funds to pay you and their down payment, you could do a double closing. For this to happen, you will have to sell of course with enough room to cover whatever profit you were looking for, excise taxes you may be responsible for, and/or any closing costs you are going to incur. You didn’t tell us who is paying for the closing costs in your option, and who is paying closing costs in your resell. These add up.

Again though, I could be all wrong if I don’t understand what the owner’s 4k has to do with this transaction and who is responsible for that $10k in arrearage.