What do ya think of this deal, Gurus?? - Posted by Tom

Posted by E.Eka on October 25, 2003 at 12:39:54:

The extra $5000, constitutes loan sharking. The most a private individual can charge is 25%.

Also, if this guy couldn’t pay the bank, why would he pay you? Because you’re a nice guy. I agree with the others, get this clown out of the property, short the mortgage and give him some money to get his life back together…well enough to move like $1000. My guess is that he’s probably getting his emergency money from another loan source. In other words using debt to pay off debt, that’s never healthy.

What do ya think of this deal, Gurus?? - Posted by Tom

Posted by Tom on October 24, 2003 at 18:25:19:

I need advice to see if this deal structure is feasible and for all intents and purposes ok with Mr. government.

Here’s the deal:
home worth 240,000
1st of 180,000
2nd of 10,000

foreclosure in 12 days
arrearage total 8,000

homwowner wants to stay in the house and says he has the money coming in 18 days (I’ll be verifying if that is true of course) to reinstate the 8K. He wants me to loan him the money to reinstate (actually I’ll pay the fees directly to the bank to make sure the funds get there) and in return when his money arrives, he’ll pay me back the 8K plus 5K in 30 days.

I told him that for me to do this I would have to have a means of recouping my money if he didn’t pay me back. So I told him that He would need to deed me the property and then I would reinstate the mortgages and secure my interest with a 3rd mortgage (which really has little power) with some sort of 30 balloon (not sure how to do this).

If he got his money and paid me on time (which I told him that the rules are strict and if he’s late…he’s late…too bad) I deed the property back to him. If he doesn’t pay, we evict according to the law.

The homeowner understood what I proposed and knows the consequences. HERE’S MY QUESTIONS:

  1. Is this on the up and up as far as a private loan goes or is there a usery law issue (or something like that that’s ringing in my head) that limits the amount of return on a hard money loan like this.

  2. What are the best documents to secure this deal as far as the private loan goes (promissary not? )? I’ve done plenty of sub 2’s…no problem there.

  3. Is there a specific way that I would word it in the loan docs that he gets the deed back upon complete and full payment of the loan from me or we get to evict?

Any other thoughts on this?

I’m just want to make sure this is on the up and up and that I’m not missing anything!


MN investor in a world of &#@% - Posted by Hank FL

Posted by Hank FL on October 26, 2003 at 10:58:05:



Not enough upside… - Posted by JT-IN

Posted by JT-IN on October 25, 2003 at 18:05:40:

In this deal, considering if all goes well you will receive a 5K profit, to take the risks that are truly involved here; and there are many potential pitfalls. You’re simply not getting enough for your participation.

Yes, if you structure it as a loan, there would be a problem with violating usury. Even if you are deeded the property, there simply are too many other issue that could raise their heads, that could make you risking 8K, turn into a much greater risk, if one or more of things that could go wrong, do go wrong…

If I were doing a deal like this one, (and I’m not saying that I would - simply not enough info to determine if I would), I would only considere doing so by taking the deed, then offer an option to them that would be for a number in excess of what represents a 20K profit. If your services aren’t worth that here, then let them find another way. You have greatly under-priced your value here… IMHO.

Just the way that I view things…


Shared appreciation mortgage - Posted by Hank FL

Posted by Hank FL on October 25, 2003 at 14:24:07:

I don’t know what that is either, but Kaiser has done deals keeping the seller in the house.

He’s no dummy.

I’ve heard John Schaub will do it once in a blue moon.

He’s no dummy either.

Having said that, most smart folks preach against what you are contemplating.


P.S. If you do a “Kaiser” search of the archives, you may find more info on how he might handle a sale/leaseback type arrangement.

Be Careful - Posted by Scott Vorous

Posted by Scott Vorous on October 25, 2003 at 10:53:19:

Sure, you could let the guy stay in the house, but from experience… you’re dilusional if you think you’ll get your money back.

Here’s what I’m thinking… get the deed and shortsale the mortgages. Ensure you get low comps and bids on repairs (if necessary) to justify a low ball. Offer only 10% on the second. Be at the house when the lender arranges the BPO (learned that lesson the hard way!)

Other option, if the banks won’t play. Get the sellers to fill out a forebearance agreement. Most lenders will require a small amount of cash up front and they’ll put the rest on the backend (this has to be done by the seller)… you just take over payments. Get the guy (seller) out of the house and have a tenant buyer pay the cash required for the forebearance. If there’s enough cash left over (from the tenant buyer), give some to your seller to relocate. There’s some cool things you can do here, but that’s another story. Hope this helps.

Re: What do ya think of this deal, Gurus?? - Posted by phil fernandez

Posted by phil fernandez on October 24, 2003 at 20:39:52:

First if I do the deal, he’s out of the property. What makes you think he’ll pay you back the money that he owes you. He didn’t pay the bank. Making $5,000 on the $8,000 that you loaned him in 30 days
comes out to 750% interest if my math is correct. The judge won’t like that.

I’d go to the holder of both the 1st and 2nd and try to negotiate discounts on the mortgages. But don’t loan this guy money.

Re: What do ya think of this deal, Gurus?? - Posted by Clair-MO

Posted by Clair-MO on October 24, 2003 at 19:46:13:

Tom, Have your attorney worked out the security forms for you to make this private loan as for usury laws check with your state security exchange commission to see what they have to say about how much interest you can charge the individual. Be simple don’t complicate matters!

Re: What do ya think of this deal, Gurus?? - Posted by Brent_IL

Posted by Brent_IL on October 24, 2003 at 19:44:14:

I?m not a guru.

I just want to make sure I got this right:

When you pay the arrearage, he’s reinstated, and you have a third for $8,000 or $13,000 behind $190,000.

When he doesn’t pay you in 30 days, you are prepared to pay the taxes and make the payments on the first and second loans during the next three months to two years that it takes to get a relief from stay or get through the bankruptcy proceedings.

And then when he files a claim alleging fraud, and motions that any forcible detainer action be abated pending the outcome of his case, you are prepared to support the property for another six months of motions. And when the case is tried your paperwork will make it obvious to a state judge that although the man was under duress because of the impending loss of his home, that 750% a year interest is only fair given that you gave him $8,000 on approximately $50,000 equity.

Is that about it?

As I said, I?m not a guru, but I believe that no good can come from letting a former owner stay in the property, and your guy is still on title.