Please, could someone look at this for me? - Posted by Tim (CT)

Posted by Tim (CT) on July 15, 2003 at 14:44:55:

I can see how your emotions got in the way. You said no more than 215k and you wrote it for $250 because you got hyped up. I’m not getting hyped up at all. I’m sticking by the numbers. If they work, great. If they don’t, great. No big deal.

Anne_MD, I believe, is the only one who gave me an opinion on the numbers. That’s what I was looking for. I’ve taken everybody’s advice regarding letting the sellers stay into consideration. Trust me I have. And, I’m probably going to heed that advice. It was good advice and I’m taking it.

I can’t stand threads that get out of control like this because somebody misinterpreted something. Fine. No big deal. But, it doesn’t need to be prepetuated especially with no evidence. Are you saying I can’t try and defend/argue/talk through/standup for (or any other phrase you want to throw in there) just because a few top guns said black and I want to say white. I’m not saying they’re wrong and I’m right. I’m just trying to talk through all issues brought to the table to determine legitamacy and importance of those issues. If it’s not what I want to hear then that’s great. I want somebody to poke holes in it. That’s what’s great about this forum. I’m not getting defensive. I’m just bringing up my thoughts and opinions of a certain aspect of the deal.

Sorry, I’ll get off my soapbox. I appreciate your feedback but I’ll have to disagree. Basically, what you’ve said is that if somebody disagrees with an experienced investor then they’re emotionally involved in the deal. I think that’s generalizing way too much.

Thanks for the response.

Please, could someone look at this for me? - Posted by Tim (CT)

Posted by Tim (CT) on July 14, 2003 at 21:46:29:

O.K. I have a pre-foreclosure that I’ve been trying to work the last couple of months. I made my last offer 3 weeks ago and the sellers never called back. I said, fine. I moved on. Well, I got a frantic call today from them. The wife tells me she’s had it and just wants out. If they could save their credit and get 1k or 500 out of it, then great.

FMV: 190k (a little conservative)
Repairs: 15k (septic replacement)
Liens: 18k in IRS plust interest - round it to 20k
Loan payoff: 127k
Current monthly mortgage amount: 1250/mo

Bank (Countrywide) calls last week with a last ditch effort to avoid the foreclosure. They make this offer. Sellers pay 5k right now and 1800/mo for 1 year. After 1 year, their monthly mortgage payments go back to 1250/mo. They can’t swing it.

Here’s my thought. Pay the 5k to the bank and take the property subject to (I believe this will put the balance back to about 122k). Sellers want to stay there until they can find a rental (8 people in the family). They pay me 1300/mo and I kick in 500/mo to cover balance. Put the house on the market ‘For sale by owner’ immediately and market the heck out of it. Even if I sell at a reduced value (180k) due to the septic issues, that still leaves 30k to 35k on the table (180 - 2k (closing) - 20k (liens)).

Would you do this? Have I missed something? The 15k in repairs is solid. I had an experienced investor/realtor look at it. Also, this realtor said the house as is is a solid 180 but no more than 200k (he didn’t actually pull comps - just looked at it - he knows the area pretty well). I actually had someone else pull comps and the houses all came in in the low 200’s. So, I low-balled somewhat for this post.

My other thought would be to pay the 5k and then try and immediately re-finance and satisfy all liens. Even if it’s at a higher interest rate, it would still be a hell of a lot less than the 1800/mo. And then, continue with the above exit strategy scenario.

Also, I don’t think this type of situation violates the Usury laws due to the fact that the sellers aren’t getting an option to buy it back. Now, I know the big question is: If they haven’t paid the bank and the IRS, what makes me think they’re going to pay me. Good question. Even if I have to evict and lose 3 months rent ((3 * 1200 = 3600), I can cover that) it still looks like a good deal.

Again, am I missing something? This doesn’t seem too tight to me.

Any thoughts are appreciated.


Thanks to everyone… - Posted by Tim (CT)

Posted by Tim (CT) on July 16, 2003 at 07:10:07:

…I truly appreciate the information. And, if I came across defiant it truly wasn’t the case. It was more a passion for the discussion.

Largely based on the information I received here and after going through the comps again, I’ve decided to pass on this deal. The words of Ed Garcia keep popping up into my head. ‘I’d rather be sorry for the deal I didn’t do than the deal I did do’. Who knows maybe this would’ve worked out fine. But, I’m not in a position to or willing to take that risk.

Thanks again. Onward to the next potential deal…

RED FLAG ALERT!!! - Posted by MrWi

Posted by MrWi on July 15, 2003 at 13:37:42:

You mentioned in your post that the lien holder is Countrywide,and subject too in the same post OOOOOOOOOOOOOOOOOGGGGGGGGGGGGGGGGGGAHHHHH,BEEEP,BEEEP,BEEEP,WARNING,WARNING,WARNING!!!. Do a search in the archives and you will see how many people have had loans called due by Countrywide because they have taken over subject to. You will be on their radar screen if you take over subject to because of the situation the loan is in. I am not saying they will call the loan due, but they have a history of doing so. ARE you prepared for that to happen???

You make all rules on thin deals. - Posted by DaveD(WI)

Posted by DaveD(WI) on July 15, 2003 at 10:20:11:

Rule #1 should be they move out and leave the place broom clean so you can do your job. The only possible way to let them stay is if they had a big fat equity you were splitting. They don’t. Remind them if you don’t buy their house they will get moved out by the sheriff. This should be pretty much a one-way negotiation. You make all the rules on thin deals. Protect yourself.

Re: Please, could someone look at this for me? - Posted by Bill H

Posted by Bill H on July 14, 2003 at 23:31:15:

I’m not sure of your numbers:

FMV: 190k (a little conservative)
Repairs: 15k (septic replacement)
Liens: 18k in IRS plust interest - round it to 20k
Loan payoff: 127k
Current monthly mortgage amount: 1250/mo

You will probably have a difficult time financing or selling it with a bad septic system. Very possible Health Department Problems when and if they find out. And; how do you “market the hell” out of a house with bad plumbing?

So Your numbers look like this to me:

FMV 190K
Septic 15K (-)
IRS 20K (-)
Selling costs 10% 20K (-) Commission,title ins, etc
Carry cost 6 * 1800 11K (-)
Total 124K
Loan Pay Off 127K

Profit -3K

I don’t think you are figuring your carry and selling costs. I also think that if you want to do the deal and my numbers are incorrect, it is best that you put the seller in an apartment immediately…saves the problem of eviction later. What if they decide not to move out or cannot find a place…you are stuck with them until you go through the eviction process which can be long and expensive depending on where the property is.

You also answered your own question…if they cannot pay the IRS. Been there had that rellationship…NO… will they pay me? Probably not.

You might get them out and make the IRS an offer in compromise and see if they will take less.

I think that your numbers of 180K ,minus 2K, minus 20K, leaving 30-35K on the table are flawed…where is the carry cost (6 * 1800) loan payoff of 127K,etc.
180 - 2, -20, -11, -127 is 20K at most. If you can sell it with a bad plumbing.

Look again…maybe my numbers are incorrect…

Good Luck,


Re: Please, could someone look at this for me? - Posted by Arthur

Posted by Arthur on July 14, 2003 at 23:02:03:

My concern on a deal like that is that they may deliberately made the house unsellable in order to stay there longer (i.e. leave the place a mess, etc).

Also, you mentioned you were going to do $15k in repairs, and you also mention them staying on as tenants. Is it going to be possible to do $15k or repairs while they are there? Is there going to be a libility issue? What makes you think they would want to move out once its all done up (they may then go on to do my first point).

Just some food for throught.

Re: RED FLAG ALERT!!! - Posted by Rob FL

Posted by Rob FL on July 15, 2003 at 15:11:05:

I’ve done several subject to deals with Countrywide as the lender. No problems here. Whatever posts you are talking about are the exception to the rule.

Re: More yellow than red… - Posted by Tim (CT)

Posted by Tim (CT) on July 15, 2003 at 14:32:17:

Yes, I am prepared for that. I’m in this for the short term. 6 months at most. It would take them 3 months to get the first letter out the door. If it was looking to do this for longer than a 6 month period, then I’d think that was an issue.

Re: Please, could someone look at this for me? - Posted by Tim (CT)

Posted by Tim (CT) on July 15, 2003 at 07:09:14:

Thanks for the reply. Well, my intent is to allow the seller to stay there until the house is sold. With the increase in monthly rent to 1800, I would have them pay $1300/mo and I would cover the remainder. So, even at 6 months of carrying costs, I’m looking at 3k not 11k. (Granted, it could be 11k if they don’t pay any rent). Now, I’m not hanging my hat solely on this, but these are born-again christians. They haven’t lied to me since day 1 (and, I’ve checked on all information they’ve given me) and also, seem somewhat naive about the whole real estate game. I have the feeling that they’ll do what they’re suppose to. But, albeit, no guarantees with that.

Also, with them being in there and carrying most of the holding costs, I wasn’t going to use a Realtor. I was going to price it on the low side to try and move it that way. It should sell easily within 6 months time. Or, maybe I could use a Realtor for the first 30 days, price it a little higher (205k) and see what happens. I’m not losing very much in doing that.

As far as the “bad plumbing” goes. This one concerns me the most. I can spend the $$$ to correct the problem which could make it sell easier/quicker or I could try and sell as a mini-handyman special “as is” or use it as a negotiation tool (‘O.K. Mr. buyer you want to buy it at 190 but you want me to fix the septic system? I’ll tell you what: I’ll correct the problem but the purchase price goes to 205k or 202k with at least 5% deposit’ - something like that). Not sure, which direction to go with that. I haven’t had the perk (sp?) test done but, I was told 15k would be worst case scenario.

Thanks again for your thoughts.

Re: Please, could someone look at this for me? - Posted by Tim (CT)

Posted by Tim (CT) on July 15, 2003 at 06:54:12:

Thanks for the reply. Well, the 15k in repairs is the septic system. From what I could gather, it’s needed repair for a couple of years now. The seller’s been there for 8 and, obviously, dealing with it. I wouldn’t repair it while they’re there. My thought is to try and sell it as is and use it as somewhat of a negotiation tool when deriving the selling price.

Also, to your first point, the seller is looking for any kind of cash they can get. I don’t have a problem splitting some of the profit with them (either 90/10 or 80/20). So, they have some incentive to try and get the house sold.

Re: RED FLAG ALERT!!! - Posted by jcarrejo

Posted by jcarrejo on July 15, 2003 at 23:44:24:

When you do your subject2’s, do you put them in a Land Trust? If not, how do you handle the insurance issues?

Watch your wallet - Posted by rm

Posted by rm on July 15, 2003 at 08:29:46:

>Now, I’m not hanging my hat solely on this, but these >are born-again christians. They haven’t lied to me >since day 1 (and, I’ve checked on all information >they’ve given me) and also, seem somewhat naive about >the whole real estate game.

When someone I hardly know starts telling me about their religious persuasion (Christians seem to have cornered the market here), I quickly reach for my wallet. I often feel an unfamiliar hand right behind me. See Robert Ringer’s classic, “Winning through Intimidation,” for a similar line… “No, I don’t want your chips, really.”

Personal experience aside, religious persuasion doesn’t add points to a credit score- paying your bills does. And these people don’t have a good track record recently. And you’re about to become their lender.

Watch out.

Re: Please, could someone look at this for me? - Posted by IB (NJ)

Posted by IB (NJ) on July 15, 2003 at 07:50:44:

Keep in mind Tim that these ‘born again Christians’ have already lied to the mortgage company when they agreed to pay their mortgage on time.

Anyone have the stats on born again Chrsitians in foreclosure?

Point well taken (n/t) - Posted by Tim (CT)

Posted by Tim (CT) on July 15, 2003 at 08:35:16:


I hear ya. - Posted by Tim (CT)

Posted by Tim (CT) on July 15, 2003 at 07:54:24:

Truly I do. And, I’m not hanging my hat completely on that fact. I heard their story and, of course, they blame it all on the lender. They claim the lender wouldn’t “let them” make up the back payments.

Interesting… I’ve never heard of a bank NOT wanting money…

But, again, as I’ve said. They seem pretty naive on Real Estate. And, I am having them sign Joe K’s seller acknowledgment document as well as mentioning to them that they should speak with an attorney.

Re: Point well taken (n/t) - Posted by Bill H

Posted by Bill H on July 15, 2003 at 12:05:56:


The “Watch you wallet post” says what I was trying to in a nicer way. Like the old saying, “Everybody out to believe in something…I believe I’ll have another beer.” Watch your wallet…somebody has to pay…and in this case I believe it will be YOU.

Good Luck,


Re: I hear ya. - Posted by Nate(DC)

Posted by Nate(DC) on July 15, 2003 at 09:05:54:

“And, I am having them sign Joe K’s seller acknowledgment document as well as mentioning to them that they should speak with an attorney.”

But neither of those addresses the key issue, which is that they’re not going to pay you.


Re: I hear ya. - Posted by Tim (CT)

Posted by Tim (CT) on July 15, 2003 at 09:14:43:

I understand what everyone is telling me: “Are they going to pay me”. To be honest, I’m not sure if I care whether they pay me. An eviction around here costs about $500 and takes about 2 to 3 months. So 3 months * 1800/mo = 5400 + 500 = about 6k. We’re still talking about over 20k left on the table even after that. I guess the question is, is there enough equity to cover these kinds of pitfalls (and, yes, I could cover the 6k prior to the sale).

Maybe I should ask it this way. If the sellers were gone (taking them out of the equation) at the time I took the deed subject to, would this be a good deal? At that point, I really would have to refinance the property just to get the monthly payments down to a reasonable amount and, obviously, carry the holding costs for 5 to 6 months. Would this be something you would consider given the numbers that have been presented?

Thanks for your time! It is truly appreciated.

Re: I hear ya. - Posted by Anne_ND

Posted by Anne_ND on July 15, 2003 at 09:49:15:


I don’t think you hear what you’re being told. You’ve made up your mind to take this deal no matter what.

Joe Kaiser specializes in pre-F/C and allows owners to stay in the property (for one year). Would he do this deal? From what I’ve heard and read, no- there isn’t enough equity. You might what to check the archives for how he works this niche.

Here’s a big problem I see with the deal as you’ve described it: these people are demonstrated liars who don’t take responsibility for their actions. Being naive is no excuse. Let’s say you get your deal, they stay in the house “until they find a place to move to”. You’ve removed all incentive for them to move. A year goes by, they may pay you, they may not. When push comes to shove, and you try to get them out, they call the lender and tell them they sold the house Subject To, and cause the lender to invoke the Due On Sale clause. You now have to care, because you’ve got $5000 and whatever it costs to fix up the septic in this deal.

Do not make these peoples’ problems into yours. I’d say, if they want to deal with you, then they give you the house subject to, and they get out before any money goes to the lender. The most money I’d give them would be $500 to walk. In fact, they should probably pay you to take their house since it has so many problems, and because of the increased monthly payment for a year.

When you say “I’m not sure I care whether they pay me”, you’re not thinking of this as a business, you’ve gotten emotionally involved in the deal. I’d sure care if they didn’t pay me. Evictions are messy, and the costs are not all financial.

You should really rethink this deal.

good luck,