Pre-Forclosure Opportunity...Need Advice - Posted by Bill K. (AZ)

Real Estate Investing
1

Posted by Bill K. (AZ) on May 19, 1999 at 16:44:41:

FJW,

I agree. She’s not in the best spot. Actually, the ex-husband took the money that they were going to use to upgrade the house. He’s using it to live now that he’s on his own. However, I like to try to help folks out. That’s just my nature. Still, the lender is the one who might suffer in this transaction, and I’m not really happy about that either. I like it when everyone wins!

I guess that the owner needs to take the largest share of responsibility in this fiasco. However, these lenders who make 125% LTV loans get a higher interest rate because they know that they are taking a risk. This one just happened to backfire on them.

Thanks for the response. I just might get her to try to negotiate the discount at this point.

Bill K. (AZ)

2

Pre-Forclosure Opportunity…Need Advice - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on May 19, 1999 at 14:04:06:

Hi All!

Thanks for taking time to read this post. I could use your help.

A seller called me today hoping that I could purchase her home. She is recently divorced, kept the home, but can no longer afford the mortgage payment. Her ex-husband has no intention of paying another dime to help out. She is not contemplating bankruptcy, is moving out-of-state in 10 days, and wishes to avoid this foreclosure. Here is the scenario…

Home Layout: 3 bd/2 ba, 1450sf
Original Purchase Price: $85,500 (new in 1991)
FMV: $115,000
Loan Amount: $120,000 (Yes, she’s upside-down)
Interest Rate: 11%
Monthly Payment: $1,180 (She’s currently 2 months behind)
Could Rent For: $950-1,000/month (Although, I’d like to flip it)

The seller has contacted the lender about a possible sale to me. She also mentioned that I would be asking for a discount in order to proceed. They are willing to talk to me, but she says that they are NOT at all happy about it. As a matter of fact, the word “gruff” came up in our conversation about the lender’s demeanor.

Before I contact the lender directly, I wanted to get your thoughts on how I should proceed. I want to sound like I know what I’m doing. :wink:

I’m familiar with asking for a BIG discount, say offering the lender $86,000 for their interest. However, since the seller is only 2 months behind, I don’t see the lender’s motivation for such a large discount at this early stage. Am I off-base in my thinking here? Or, is it advantageous for the lender to negotiate an “out” early on in the process?

I can certainly help them understand their holding costs and the “upside-down” nature of their relationship with this property. But, I need to get some confidence in my position here. If they were to list it with an agent at 6% commission, and sell the property for $115,000, they stand to make more than I’m offering. They’d still lose money, but not as much. How do I negotiate from a position of strength and control?

Finally, are there any other opportunities that you can see in this situation?

Thanks in advance for your consideration.

Sincerely,
Bill K. (AZ)

3

Re: Pre-Forclosure Opportunity…Need Advice - Posted by HankM

Posted by HankM on May 19, 1999 at 18:32:33:

I just don’t see a deal here, but if you want to help, and she’s leaving anyway, tell her to offer a deed in lieu, and if they accept, go talk to the bank.

Hank

4

Re: Pre-Forclosure Opportunity…Need Advice - Posted by Sue(NC)

Posted by Sue(NC) on May 19, 1999 at 16:06:28:

Remember if the bank allows her to short sell to you, she might receive some bad news come tax time…

Forgiven debt is taxable, and even in the low brackets 35K in forgiven debt would carry a big tax bite. She’s probably better off in foreclosure.

You could alway pursue from the bank afterwards.

5

She’s cooked. Let her fry. - Posted by FJW

Posted by FJW on May 19, 1999 at 15:30:37:

Bill,

The only way she’s going to save herself is if she continues to make part of the payment herself after she either leases it or sells it subject to or however. It doesn’t sound like she’d be reliable to do that.

Don’t worry about the bank. If you think you can make her an offer, then do it; offer her to buy it for $86,000 or whatever. Then let her try to convince the bank on a short sale. She spent the money, 100%+ refi, and now she wants to get out of it. Stick a fork in, she’s done.

FJW

6

Re: Pre-Forclosure Opportunity…Need Advice - Posted by Tim

Posted by Tim on May 19, 1999 at 15:08:42:

How badly does she want to avoid foreclosure? Although it is rare, I have heard of buyers getting sellers to pay them to take the liability off of their hands in situations like this. This way she could leave the mortgage in your hands and salvage her credit.

If she could come up with $7,500 (i.e. maybe borrow it from family or maybe she has it), you could probably bring her current and end up 100% LTV. You might still get a discount from the bank in addition to this. Present them with the facts. They can either foreclose and go through the expense of doing so or allow you to assume the mortgage and have a better chance of actually stopping. You might also look into refinancing, 11% seems pretty high but is probably due to her being upside down. Maybe it is possible, depending on your own credit and resources to get teh payment down and rent it for a positive cash flow.

Also, where is she going in 10 days? Moving in with family? Maybe teh answer could give you some other ideas of how to solve her problem.

Again, this may sound naive, but I guess it better than telling her a flat “NO!” Just a thought.

Tim