Tenant/Buyer w/ Bad Credit & $10k - Posted by GregNorman

Real Estate Investing Real Estate Financing
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Posted by Michael Morrongiello on March 08, 2000 at 12:05:58:

Gio:
When you wish to seller finance a home to a buyer if you intend on holding on to the note then you pretty much make your own judgement calls when it comes to getting comfortable with a buyer. Payors with sloppy or blemished credit backgrounds can become much more acceptable to a note funder as tiime goes on and they establish a conclusive payment history on the seller financed loan. The cliche “Time heals all wounds…” is applicable even with a persons poor credit background. After 3-6 months or more of payment history on a note, even payors with low credit scores become more acceptable.

IF however you are looking to sell a property and owner finance the sale and then also wish to right away SELL that paper either at closing or shortly thereafter then some more attention to how these payors “size up” must be paid. There are some great advantages in using seller financing that differ from other financing methods and allow you greater control over the sale and financing process:

  1. Typically there are no income to debt ratio requiements

  2. Credit scores themselves are NOT the only criteria to making a deal happen. There is a willingness to look beyond the credit score at the overall credit report and other off setting positive issues like long term employment stability, etc.

  3. The documentaton requirements are much more relaxed and streamlined. There are NO requirements for VOD’s, VOR’s, or VOE’s

  4. A simple credit application, some recent paystubs, maybe some W-2’s, and thats it.

The way to make sure a deal will happen is to “preflight” the transaction with an experienced note funder.

Best of luck

Michael Morrongiello

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Tenant/Buyer w/ Bad Credit & $10k - Posted by GregNorman

Posted by GregNorman on March 07, 2000 at 10:49:41:

One of the homes I’m currently marketing is a $150k TH (pretty nice TH, out a bit from the city). While showing the home, I was chatting with a couple who said they had bad credit, but said they had $10k they could give me up front. That got me attention.

After running their app thru my mort broker, he said he couldn’t get them a loan for years. He said their credit report was like a ‘rap sheet’. Pages of bad things, including a bankrupcy in 96 and a repo in 11/99 to the tune of $30k. They make about $65k/yr.

They have 4 small children, and the home I’m marketing is immacculate. I really want to have someone that will end up buying this thing, not get it back in bad condition.

  1. Any suggestions?

  2. If you are a mort broker that can deal in VA (near DC) and think you can take on something like this, send me an e-mail. I would like to ‘expand my possibilities’. (I do run into other situations similar to this… usually not as much up front, though… so I might be looking to establish a working relationship.)

Thanks.

GregNorman

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Re: Tenant/Buyer w/ Bad Credit & $10k - Posted by Bill Gatten

Posted by Bill Gatten on March 07, 2000 at 20:17:15:

Greg,

Consider a PACTrust. Take the $10K, plus two or three months Contingency Fund (you can even have them build up the CF over time so that you get a whoppin’ positive until they’ve built up the reserve), so that if they screw up you can use their money to bounce them out with and still have plenty left over.

Unlike in other creative “bridge” arrangements, a PACTrust buyer can’t claim “equity” to forestall or thwart Foreclosure, and remains subject to direct eviction action (3-Day Notice, eviction, Unlawful Detainer, etc.) even though they have full access to all benefits of ownership, including tax-deductions, all along the way (justifies much larger payments).

The Contingency Fund is their (in any amount you require) so that your payments are always on time, even if theirs are late.

I’ve had tenants as bad as (or worse than) the ones you describe, and I’ve never had a problem. To be honest, after several months, I almost welcome a default so I can boot them out, raise the price and the monthly payments, and start all over again.

I have a PACTrust Bene. in a little house in San Bernardino Ca. right now, who is sending cashiers checks every month (that’s what we require after two late payments…for the duration of the agreement)…the minute he misses one, that wrassler is down boy. He came in in the beginning with $10,000 and the property has gone up in value from $65,000 to about $75,000 since he moved in. I won’t cry a bit if I have to move his crack smokin’ buns out (Gimme another shot of Moon, and another bite o’that rattle snake, Luke! I?m feelin? mean!).

Bill Gatten

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$10k, but they don’t make the car payment??? - Posted by SCook85

Posted by SCook85 on March 07, 2000 at 19:56:14:

It’s amazing how the people who have the most money to put down don’t make any of their payments. I guess that is why they have money. Seems to me they should have been able to make payments on the car.

I had a woman a few months back who had been evicted from a home about 5 years ago, was being foreclosed on now and wanted to buy a home from me. She said that she had $2500 to put down. I told her to use the $2500 to reinstate her mortgage (it was enough), she said “nah, I don’t want the home anyway”. I said “nah, I don’t want you in my home”.

I agree with Phil. Only the worst of your sub prime lenders will consider them. I would consider L/O ing to them, ask for more money, they always seem to have more. That way you can get them out much easier if they don’t pay.

Hope this helps.

Steve

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Seller finance the sale - Posted by Michael Morrongiello

Posted by Michael Morrongiello on March 07, 2000 at 17:06:37:

Greg:
These types of buyers are good candidates to seller finance the sale of the property to. You agree to take back financing and then sell that “paper” for cash. You move on and they pay the note to whomever it was assigned to.

I would explore this as a possibility if you really want to sell the unit to them

Michael Morrongiello

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Re: Tenant/Buyer w/ Bad Credit & $10k - Posted by phil fernandez

Posted by phil fernandez on March 07, 2000 at 15:16:32:

Hi Greg,

Nice seeing you in Atlanta.

I’d pass on them. A bankruptcy a few years ago is one thing, but if since the bankruptcy they continue to rack up bad credit you’ll be their next victim.

That repo in 11/99 just happened so you might be next. If they can’t afford that car payment, can they afford the house payment. The fact that there has been no improvement in their credit since the bankruptcy worries me. My concern would be that the $10,000 you will get up front will be the last money you will ever see from them. They don’t pay and wreck the house. Naw don’t do it.

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Re: Tenant/Buyer w/ Bad Credit & $10k - Posted by Bill Taylor

Posted by Bill Taylor on March 07, 2000 at 11:37:57:

the only way I would consider these folks is with the L/O if they don’t fly right through their a** out. make sure they know you mean business. Don’t pussy foot around with them when you sign up the lease. I like the L/O so we have all the cards. We have also used a co-signer on folks like this. If they have no one that trusts them enough to do this you might figure they have beat about everybody they know. Good luck and give them no breaks. I hope others post for you I would like to see their ideas.

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Re: Seller finance the sale - Posted by GIO

Posted by GIO on March 07, 2000 at 19:40:08:

hi micheal, on a seller created mortgage do you look for the same criteria as a bank, and how much can this mortgage be resold for - how do i know someone will actually buy it if the buyer has a score of 580/590/600 or whatever (not too good) also what kind of closing costs will everyone incur