New Situation for me, Pre-foreclosure...No equity BUT... - Posted by JohnB_NJ

Real Estate Investing
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Posted by David M. Petrovich on April 14, 1999 at 12:12:33:

Thanks for your comment, Bill. And while I appreciate the time you took to read my response,(I don’t recall if I addressed deficiency other than to say that the VA eligibility would be suspended if the loan were not repaid in full) I hope that you will also appreciate my platform. As I had responded privately to D. Alexander, my interest is to preserve and further the ‘best interest’ of the financially distressed, less financially sophisticated, foreclosed homeowner.

I don’t know where you hail from, Bill, but here in New Jersey there is a proliferation of ‘real estate scamsters’ utilizing predatory lending practices, equity skimming, and deed stealing techniques designed to profit at the expense of the aforementioned class of homeowners. I cannot condone that.

A handful of local subprime lenders with direct ties to Wall Street have had their records seized, and their offices closed by Federal officials. Also, 4 state licensed real estate appraisers have lost their license, one is now in jail. There are hundreds of displaced families who, having misplaced their trust in slick talking ‘investors’ are now left holding a very, very, empty bag.

My post was not intended for the investors who have a demonstrated integrity. It was aimed at the scores of inexperienced who are following boilerplate instruction manuals… wasting valuable and precious time, time that could have been used to help implement home saving techniques.

Furthermore, Bill, I’m very comfortable in saying that I am qualified to offer an opinion in this area. If, as you say, my advice is ‘off center’ than perhaps it comes as a direct observation of the injustices that I have seen inflicted upon the unwary.

That’s where I’m coming from, Bill.

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New Situation for me, Pre-foreclosure…No equity BUT… - Posted by JohnB_NJ

Posted by JohnB_NJ on April 12, 1999 at 22:15:16:

the bank will take a “short sale”.

Ok first, if the bank takes a short sale, will the home owner get hit with a deficiency judgement? This is a VA insured loan.

Ok, here are the fact to-date:

FMV (after repairs) $90 - 95k

Loan balance: 80K VA 7.5% (originated 12/96)

Current value: 70 - 75K in present condition (retail)

Repairs: (unsure, I haven’t seen inside but from what I was told and from the looks of the outsides deferred maintenance…) $ 10k

So, the woman is up the creek. She has a home worth 5k less than the loan balance because of the condition so far. I would have to pay considerably less so that I can flip it or renovate it and retail it.

Will the VA let me take this loan over with out assuming it? I doubt it. I am self employed now but I have good credit. But I will call the VA when I am sure I know what my exit strategy is. I would like to help her save her credit (that is what she wants) but I need to make a profit to stay in business. So, what to do? No equity, VA will sell short but how short?

Has anyone had any experience with the VA taking a short sale? And did they discount 25% or more??

If the VA will short atleast 20k, I am in! But can I save this house in time. She is 8 months behind and past the cure date. They will not take payments and her account has incurred attorney’s fees. The only way is to pay it off but, again, the homeowner said “The nice VA man said I could do a short sale.” The foreclosure date has not been set. And she can postpone that date twice without filing BK.

What would you do? What questions should I ask her tomorrow when I schedule an appointment with her? How would you structure a deal?

Geez, I wish I had bought Joe Kaiser’s stuff. I loaded up with materials at Dallas. I am swamped with books and tapes. I just dread getting another course until I get through what I have. So any and all help or comments will be greatly appreciated.

I just wish people in foreclosure would call my ads when they first get into trouble. Do they just close their eyes and hope Ed McMan and Dick Clark show with with ballons and a big check???

Again, thank you for helping me with the problem.

Sincerely,
JohnB_NJ

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Re: New Situation for me, Pre-foreclosure…No equity BUT… - Posted by Bill Gatten

Posted by Bill Gatten on April 13, 1999 at 21:55:52:

John,

Have you consider a PACTrust?

The owner places the property into a land trust and names you a 90% co-beneficiary with an agreement to forfeit her 10% at termination in two or three years (or months). Leaving the property in the borrower’s trust and having her as a minor beneficiary protects the property from judgement creditors, and any untoward actions on her part, while avoiding the Due-on-Sale issue. In the meantime you have 100% of the benefits and incidents of ownership of the property (including “salable” or “tradable” tax deductions).

You then only need to bring the loan and the taxes and insurance current, and take over all of the payments and costs of posession and use.

Rather than flipping it or leasing it out, you can, of course, “sandwich” the PACTrust by simply finding a 3rd (resident) co-beneficiary whom, for the income tax benefits and all other benefits of homeownership, and, some percentage of potential for future appreciation and principal reduction, would cover all your costs (and then some)… and probably even provide you a monthly positive over the the term of the trust. You might even have them (the resident beneficiary) handle all the fixing up and refurbishment costs (after all, you’re affording them 100% financing without loan qualifying or credit risk… despite any credit problems or financial limitation they may come to you with).

Bill

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Re: New Situation for me, Pre-foreclosure…No equity BUT… - Posted by David M. Petrovich

Posted by David M. Petrovich on April 13, 1999 at 17:02:35:

First of all, John, when a VA insured loan is involved, the process is called a ‘compromised’ sale.

Second, while the VA servicer may not pursue a deficiency against the foreclosed homeowner, the Borrower’s VA eligibility will be restricted until the deficiency is repaid.

Thirdly, from what I read from your post, you think that you are the only thing that will help preserve this woman’s continued homeownership and or credit.

While this is certainly NOT the case, the fact that you intend to IMPLY this to this woman can have an adverse impact upon your future in this line of work.
You appear to be operating as a FORECLOSURE CONSULTANT.

Better know your stuff, John. Before you learn your craft at the expense of financially distressed
homeowners, know what you are doing and NOT RELY ON ADVICE from a message board.

Next, neither the VA or the Servicer will be able to give you the time of day without express written consent from the Borrower.

If you are sincere about saving the woman’s credit or preserving her continued homeownership, give me a call. I can’t tell you how many cases I’ve worked on where investor ‘wannabees’ screw up time sensitive foreclosure, and end up walking away leaving the trusting, less financially sophisticated homeowner with less time, and in worse condition.

If you need help,I’d be happy to help.

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Re: New Situation for me, Pre-foreclosure…No equity BUT… - Posted by David Alexander

Posted by David Alexander on April 13, 1999 at 02:34:24:

The only way I can see that it would work is if you found a buyer that would take it as is, with enough money to reinstate the loan and put some change in your pocket. You would have to get those figures(reinstatement) and then market the property. Your buyer would have to be willing to give you a deed and walk. I wouldn’t guarantee her anything, but just let her know your her only chance at saving her credit.

Good Luck

David Alexander

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Re: New Situation for me, Pre-foreclosure…No equity BUT… - Posted by JohnB_NJ

Posted by JohnB_NJ on April 13, 1999 at 22:41:52:

Bill,
I appreciate your advice about the PACTrust. Until last week, I had no idea of this vehicle. I read a few posts about it. Could you email more info? I have a better idea of how it works and I do agree that it would be a nice alternative if needed. But in this case, the loan is past the cure date. The woman told me that she can not make up the payments and bring the loan current. Now maybe I can negotiate with the bank but than that lets the “cat out of the bag” as far as the PACtrust and DOS avoidance goes.
Bill, I appreciate your comments and your posts…thanks!

Sincerely,
JohnB_NJ

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Re: New Situation for me, Pre-foreclosure…No equity BUT… - Posted by JohnB_NJ

Posted by JohnB_NJ on April 13, 1999 at 23:01:04:

David,

I appreciate you replying to my post. Maybe I didn’t come off the right way. If I can’t buy this home, I will point this woman to a few loan brokers that might be able to help her refi. And I gave her the phone number to a non-profit organization that helps people in financial do-do. See, I really like to make money in REI, but I learned that I get a good feeling by helping people buy a home that they normally could not have purchased by the traditional means. I also would like to help someone with a pending foreclosure. This situation is the first preforeclosure I have come across and I am sure more will call. So, like usual, I come to get advice from others that have done a similiar deal. I would never want to make a situation worse. Again, that is why I ask questions. I listen and evaluate the advice. I am not a “wannabe”. Yes, I am new to creative REI but I am a doer. I take action and I always try to do what feels right. If it doesn’t feel right, I will not do the deal. I like to sleep good at night. I would not want to make a situation worse. So again, I do my homework. I start here, I listen, I do more research and then I ask my attorney.

If you would like to help me with advice, please email me with your number and I will call you and discuss the details.

Again, thanks for your follow up and good investing to you.

Sincerely,
JohnB_NJ

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Re: New Situation for me, Pre-foreclosure…No equity BUT… - Posted by Bill Gatten

Posted by Bill Gatten on April 13, 1999 at 21:37:35:

Mr. Petrovich,

In all candor, though your advice may be prudent regarding one’s relying solely on advice of any kind (whether it be from this board or elsewhere); quite frankly, I find your condescending attitude sorely misplaced and more than a bit annoying. This message board is full of “wannabe” investors who have become rather successful through sharing ideas (advice).

And, please forgive me for saying this as well, but your own “advice” might be a bit off center. I’m sure you’re aware that lenders seldom, if ever, pursue deficiency judgements (in those states where they are allowed), even though they can. They are, however, obliged to report the Debt-Relief to the IRS, and the seller will be taxed on it, as well as receiving a negative credit report entry.

My take on what David is suggesting is not Foreclosure counseling at all, if he is offering to purchase the property.

Maybe you could snoop around the site a bit before jumping in with both feet. You might be surprised at some of the names you see.

Bill Gatten

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Re: New Situation for me, Pre-foreclosure…No equity BUT… - Posted by David Alexander

Posted by David Alexander on April 13, 1999 at 17:54:08:

What does buying a house have to do with being a foreclosure consultant, and what does being a foreclosure consultant have to do with being an Investor?

This message board is chock full of good advice from people putting real deals together, not just me. Be careful you might learn something.

Daavid Alexander

David Alexander