Pre-foreclosure...would you/did you do this before - Posted by Mike (MI)

Posted by MichaelO on October 17, 2003 at 14:18:26:

Hey Mike…now that you’ve gotten all the responses, it really comes down to “You won’t know unless you try” If it were me, I would try whatever I could to get that house and make some money on it. Maybe you won’t find someone that will put 45K down, but maybe you’ll find someone that will do 25K? There’s different ways to do a deal and YOU WON’T KNOW UNLESS YOU TRY…and if it doesn’t work, you’ll still learn something.

Pre-foreclosure…would you/did you do this before - Posted by Mike (MI)

Posted by Mike (MI) on October 16, 2003 at 08:21:23:

Hello all,
I have a house in pre-foreclosure. Here are the #'s:
1st mortgage - 221K
2nd mortgage - 26K
IRS tax lien - 18K
Value 290K

My current plan is to:
A. Get the Deed (in Land Trust)
B. Short sale on 2nd (~5K)
C. Negotiate w/1st to apply back payments to end of loan with payments to start in 2 months
D. Sell on Land Contract (Owner Financing) w/15% down for 300K

  1. Use 45K to pay-off 2nd and IRS (23K)
  2. Pocket 22K
  3. Charge 8.5% interest on remaining 255K w/3year balloon.
  4. Collect ~30K when balloon comes due.

Has anyone done anything like this? What are my chances of getting a 45K down payment?
Benefits to the seller are: no foreclosure, IRS tax lien paid off, and rebuilding of credit by paying on their mortgage for 3 years prior to paying it off.

Thanks for your input/experience,

Why just Short the 2nd? - Posted by Randy (SD)

Posted by Randy (SD) on October 16, 2003 at 11:21:39:

It would take some skillful short sale experience but if you have the ability to short the 2nd for $5k, why not attempt to short the 1st as well ? and for that matter if the seller is not going to receive any proceeds from the sale the IRS would most likely accept less as full settlement in an ?Offer and Compromise?.

The bottom line is if you?re successful in negotiating $200k or $225k (80%) as full negotiated settlement for all three liens, then sell on a CFD for $300k with 5% down and the new buyer getting 85% LTV on the seller financed 1st note and 10% 2nd. Sell the 1st at close for cash (90% cash out=$243k). Pocket $20-$43k and have the 2nd paying monthly income?.

Depends on how successful you are at negotiating the shorts. This is allot more reasonable than a retail buyer coming up with $45k down payment.

I’m a pessimist, but… - Posted by Eric - GA

Posted by Eric - GA on October 16, 2003 at 08:54:37:

this seems really not doable. If it is, I want to hire you.

“C. Negotiate w/1st to apply back payments to end of loan with payments to start in 2 months”

To stop a FC, most mortgage companies want some $$ up front, usually at least 25% of the arrearage…and I’ve never heard of them deferring payments for a couple months.

“D. Sell on Land Contract (Owner Financing) w/15% down for 300K”

Who do you know that has $45K in cash but cannot get a loan? Almost anyone with credit better than a 300 can get a 20% down loan…so this person could buy a $225K house and really own it.

Incidentally, I don’t see that you’d have to payoff the IRS until you sell the house, but I could be wrong on that.

Eric - GA

Re: I’m a pessimist, but… - Posted by WCF(CA)

Posted by WCF(CA) on October 16, 2003 at 17:32:42:

I have to agree with Carmen on this. Trust me, there are people who have cash but with bad/no credit.

My family has a chinese restaurant years ago and some of my relatives have enough savings for 30-40% for down payment. Believe it or not, none of my relatives would purchase any property without minmum 20% up front.

The point I am trying to make is: my relatives were new to this country; nobody taught them about FICO in America; nobody could help them get a good conventional loan because they they worked at the chinese restaurant and the debt-to-income ratio were too high*(banks don’t count the under-tables); nobody even explained to them what was the interest rate after they got the loan because they realized they could afford the monthly payment & pay no mortgage insurance.

The folks are out there, find them and help them with their own home.

**(My aunt discount her own mortgage by around 60k from 160k 5 years ago, now the property is worthy 550k before fix-up)

Never say never - Posted by Carmen_FL

Posted by Carmen_FL on October 16, 2003 at 16:54:45:

All of this is definitely doable. The question is, is it worth what you’re going to get for your time?

Yes, many banks do let you put the payments on the back end. And yes, I have done it with only one payment up front (the first “new” monthly payment). So it can be done.

And there are A LOT of people out there who cannot get a loan for at least 85% of the value of a home they want to live in. May I suggest a few? Self-employed people with bad credit; people who just moved to a new line of work; people who work in a “cash” business; people where the income would be good enough if both people had good credit, but the chief breadwinner has really poor credit; people who can qualify for a $200K house on their income and credit, but who want to live in a $300K house; people whose family members would help them buy a house but the loan programs don’t allow for a $45K “gift” that can’t be traced directly to them; people who are new to to this country; people who don’t have any credit or have very little and don’t want to go with FHA; people who hate banks and don’t want them all in their business. The list goes on and on. Run just one ad saying “Owner will finance” and you’ll find a few. Ask them all how much they have to put down. You’d be surprised how much cash people sit on who really are not sure HOW to buy a house, because at some point in the past someone told them they couldn’t; or have never tried because they “know” they couldn’t; or have done it conventionally in the past and had a bad experience.

As far as the IRS lien, I am trying to work one out right now on a house we’re trying to sell. We put the property in Trust, and are now negotiating this tax lien. They can be negotiated down as pointed out above (with an Offer in Compromise), this may be a good idea anyway, if you have time, since it will wipe the debt out - but it can take about 6-8 months. There are law firms that specialize in negotiating down IRS liens to pennies on the dollar. It can also be released from the property (which is what we’re trying to do) if you can show that the property is being sold and the sellers not receiving any profit (e.g. if there is a short sale in place). Have patience, is all I have to say. The IRS has made us jump through enormous amounts of hoops for the past 4 months, AND they are very unhappy with the whole trust idea (they just don’t understand … it seems so simple when we explain that the owners have a right to put their property in trust; but they are considering it a “sale” to the Trustee, which makes no common sense … so IRS agents don’t seem to be the brightest bulbs in the lightstring)

Re: I’m a pessimist, but… - Posted by E.Eka

Posted by E.Eka on October 16, 2003 at 10:14:06:

I have to agree with Eric on this.
You can have NO credit, if you have $45K in cash, you can buy almost anything. Granted if a person had $45K in cash, they would pay off their debts that’s keeping their score at 300. you see what we’re saying.
This deal is not only complicated but it’s contigent on A LOT of IFs. If the seller didn’t have the IRS lien, it would be a better deal. You’d have to run the rehab numbers, Fair market value numbers, as well as selling expense.