My first foreclosure deal - Posted by DSmith

Posted by Joe on March 14, 2006 at 13:33:17:

Paint, carpet, landscaping, plus a few other erroneous repairs … $10k estimate for repairs.

$150k - $10k = $140k

Rough offer estimate: $140k * .70 = $98k so she would get $28k. You really need to do a more detailed cost and esimate breakdown than this, but it’s a starting point. If you say “yeh, sure, I’ll give you $28k” but then another $50k lien shows up, are you still going to give her $28k? Your deal should say “free of all liens, free and clear title, etc” unless you are doing subject to, then the offer should say “excluding lien x, from lender y, for the current balance of z” or something along those lines.

Also, are you selling on the back end with an agent or does the seller have a listing agreement with an agent… because you’ll need to account for their commission. Then you need to account for refi costs, or other financing costs, etc.

My first foreclosure deal - Posted by DSmith

Posted by DSmith on March 14, 2006 at 09:17:35:

I?m working on my first foreclosure deal and I?m not sure of the exact steps to take.

First, the short version of my background. I?ve done two deals so far. One was a rehab purchased from another investor and the other was an MLS lucky find. I turned a nice profit on both of them. I?ve also read a countless amount of books and articles. I?ve recently realized that these books and articles, while good for motivation, don?t really help you with the true ?anatomy of a deal?.

So when the foreclosure listings came out I went door knocking. House #10 had a very interested owner. The house has about 80K in equity. I have a meeting with her tonight to discuss some different options. I have a good idea of how to explain the options, I?m just not sure of the steps to actually follow through.

Are these steps accurate?

  1. At tonight?s meeting get her to sign an information release form.
  2. Contact mortgage company and find out payoff and amount to bring loan current.

Here?s where it gets cloudy for me. I think from talking to her, the deal that makes the most sense is for me to obtain the property, refinance and split the equity with her. I?m going to offer some other options, but I think this is the one that has the best chance.

  1. Get her to sign a sales contract. Do I need to detail the equity split here? How / where would I word that?
  2. Get attorney / title office to schedule closing or if there?s no (or little) up front money out of pocket have her sign the deed to me with a notary and skip the attorney. If I did this, would I then have to sign a security deed to her guaranteeing half of the equity?

Thanks for your help with this.

Re: My first foreclosure deal - Posted by Joe

Posted by Joe on March 14, 2006 at 11:18:31:

Instead of agreeing to an equity split, I’d just agree on a set amount ahead of time. You want the owner out of the picture as soon as possible, so having them linger on until you refinance is kinda murky. You can have them owner finance their equity, which gets them out of the picture temporarily, but you don’t have to bring large amounts of cash with you to the table.

Also, you don’t say what the FMV or ARV of the house is, so it’s hard to judge how to split the $80k. Let’s say FMV is $160k, and it needs $20k in work to bring it up to an ARV of $200k. Then, giving her $40k in equity sounds reasonable. If FMV is $200k, and ARV is $240k for the same $20k in work … then I’d only give her about $28k. This all assumes that she owes FMV - $80k. You really need to know the loan balance to figure out how much to give her.

Re: My first foreclosure deal - Posted by DSmith

Posted by DSmith on March 14, 2006 at 12:49:50:

I just got back from a second meeting with her at lunch and she signed a release form, so I can talk to the mortgage company.

The principle balance is 70K and ARV is 150K after paint, carpet and some landscaping.