Re: RE Purchasing Transactions Examples - Posted by JohnBoy
Posted by JohnBoy on December 05, 1999 at 24:42:17:
1.) typcial - basic normal people deals
Buyer puts 20% down and qualifies for an 80% mortgage.
2.) not so typical - deal spiced up by an REI
REI buys on contract, or lease options a property, or assumes the sellers loan either by qualifying through the lender or by passing the lender and taking over the loan “subject to”.
3.) creative finance deal - complex deal using some fancy REI techniques
Seller quit claims the property over to the REI. REI investor records the deed and then refinances the property (good method when the underlying loan is in default and needs to be paid off)
Here’s a deal we were just working on:
Seller is facing foreclosure. Bank said they would agree to a short sale of $51k. Balance owed is $77k. Property will appraise for about $92k.
Seller wants to keep and stay living in the house. Title and mortgage was only in one spouses name. The spouse in foreclosure could not find anyone to refinance her because of being in foreclosure and other credit problems. They couldn’t find a lender to refinance the other spouse because they were related by being married.
Seller didn’t care what it would cost them as long as they didn’t have to give up the house and come up with any money since they had none.
We came up with a solution.
We explained to the seller that if the bank accepts a short sale they could go after her for a judgement against the amount they discounted and that would end up on her credit also. The lender would also probably end up serving her a 1099 and she would be liable to the IRS to pay taxes on that amount as additional income. They didn’t care about that and were willing to absorb the additional taxes if that was the case.
We checked the credit on the other spouse that wasn’t on title and found a lender to work with to get him refinanced after structuring the deal in a way that this lender could refinance him.
What we were going to do was have the spouse that was on the loan and title quit claim the property over to us. Then we would record the quit claim deed and a warranty deed at the recorders office. At the same time we would write up a contract for deed between us and the spouse that wasn’t on the title and loan for full market value which would have been $92k.
Our lender would then refinance the contract for deed for 80% of appraised value of the property and we would agree to carry back the other 20% as second mortgage. Our lender agreed to this and had him pre-approved for the loan.
If the appraisal came in at the $92k we guestamated based on recent sales in the neighborhood, the 80% our lender would have loaned would have been for $73,600.00. (80% of $92k)
We would carry a new second for the difference which would have been $18,400.00 that we would have had payments coming in on.
Out of the $73,600.00 that our lender was going to finance, they would have paid off the $51k the original lender was going to agree to accept and the difference would have gone to us. $73,600.00 - $51,000.00 = $22,600.00 cash in our pocket PLUS a second mortgage for $18,400.00.
That one deal would have made us $41,000.00! ($22,600 cash + $18,400 second = $41k!)
We had everything set to go and our new buyer (the sellers spouse) all approved!
We had submitted our all cash offer to the lender forclosing for the $51k they were going to accept as a short sale. They wanted to have 2 appraisals done on the property first before accepting our cash offer. After they got the appraisals back they decided they were going to hold out and want $85k which was MORE than what the seller owed!
After going round and round with this lender on this deal and getting nowhere, we had to pass on buying the property since they no longer would agree to a short sale.
Although we missed out on the deal, it may have a happy ending for the seller. After hearing she had the house listed with a realtor for a year prior to going into foreclosure and getting NO offers at all, the lender is now looking into restructuring the loan for her so she can keep her house!
I know I ended up losing out on making a KILLING on this deal, but after meeting these people and knowing the circumstances as to why they feel behind in the first place, I’m really happy for them that they may still get to keep their house they so desperately wanted to keep in the end. They really seemed to be down to earth good hearted people! So with a little luck they will be having a Very Merry Christmas in Deed!
Anyway, you asked for a complex deal using some fancy creative REI techniques and since we had everything structured and all approved to go on our end I thought this deal would fit as an example of what you were looking for.
In any deal, the bottom line is, find out what the problem is and figure out a solution to solve the problem where you can make a profit for your knowledge in putting it all together.