This Week’s Pre-Foreclosure Deal #2
I run into so many interesting deals, that I thought I'd start a series of how to structure a deal, creatively.
Hope This Helps! -Mrs. Meltzer
SITUATION: Ms. R. was laid off and has fallen behind in her mortgage payments, credit cards, utilities, etc. She has a zero balance in her bank account. She is a couple thousand behind in her mortgage and the house is trashed. She has not fixed anything on her property in the past 10 years (this is called deferred maintenance.) She is willing to sell her home, but doesn’t even have enough money to move. The foreclosure sale is in a month.
HOW CAN WE MAKE EVERYONE HAPPY, HELP EVERYONE OUT AND STILL MAKE A PROFIT ?!?!??!
SOLUTION: Ms. R. realizes that she has to sell her home. She is starting her new job on Monday but she is making a fraction of what she was making before so she will never be able to keep up with her mortgage payments.
I offered to let her move into one of my other homes, but the payments would still be too large. We decided to have her move into an apartment and spend a year getting her credit back into order. Then, in a year, she could try to buy another home. If you have 12 months of keeping your payments current, you can get a loan.
I gave her a list of nearby apartments to move into, the name of a mortgage broker when she is ready to buy again, a primer on how to fix her credit and the name of a reputable debt consolidation company.
We signed a “Sales and Purchase Agreement” (found at any local Board Of Realtors office) and I gave her a $200 deposit with New Clean Crisp $100 Bills.
In the Sales and Purchase Agreement, it stated in the “Additional Terms, Conditions or Addenda” the following …
A. Buyer agrees to purchase the property in AS IS condition.
B. Buyer will pay the closing bill on all utilities on the property.
C. Buyer will pay for moving expenses
D. Buyer will pay for application fee for Seller’s New Residence.
E. Buyer will pay Pet Deposit for Seller’s New Residence.
F. Buyer will pay Administration Fee for Seller’s New Residence.
G. Buyer will pay Security Deposit for Seller’s New Residence.
H. Buyer will pay deposit on all utilities for Seller’s New Residence.
I. Buyer has to perform the above conditions within 30 days of closing.
J. Seller agrees to vacate the premises within 30 days of closing.
K. Seller allows Buyer and Buyer’s representative access to the property.
We make an appointment with our lawyer (in some states, you’ll use a title company) for the closing. I surprise her with another couple hundred dollars. She is now REALLY happy! She actually hugged me at the closing table.
Immediately, I make all the back payments on the mortgage that is foreclosing.
I’ll write the checks out to the apartment complex and the movers directly, as needed. If I write the check out to her, I’m afraid she’ll mismanage the money. This way, I know for sure that the money is going where it is supposed to go.
This method does a few things. It saves me from having to go through an eviction. She will not have an eviction on her credit record. I know that she won’t tear up the place when she leaves because she knows I am helping her out and we are on good terms. And the month that I am giving her to move out is the same month it would take if I were going to evict her.
While she is looking for a new place to live, I am calling handymen found in the local newspaper to give me estimates. I find that the handymen in the newspaper give me better deals since they are usually out of work. I meet all the handymen at the property on the same day (1/2 hour apart from each other). This lets the handyman know that I am getting bids and hopefully they will give me a better price to beat out the other guy. It’s amazing what a little competition can do.
After Ms. R. moves out, the handymen will start the next day. That is, unless an investor comes along and wants to buy the property without me doing any of the work!
I plan to make a *net* profit of no less than $35,000 and as much as $50,000 on this deal.
My total investment before repairs is under $10,000.
EVERYONE IS HAPPY!
Ms. R. has her credit saved, there will be no foreclosure on her record.
Ms. R. can leave her old dingy dirty home (and life) and go on to a bright, clean, new shiny apartment (and life).
Ms. R. will not have an eviction on her record.
Ms. R. will have all of her utilities paid AND will be able to get new utilities at her new apartment.
Ms. R. does not have any more stress in her life and can focus on the positive things.
Ms. R. will be able to keep her son (who is in high school) in the same school district.
Ms. R now knows the steps she needs to take to fix her credit and has someone helping her
Ms. R is no longer in this alone
We make a nice return on the money we invested.
We can sleep well at night knowing that we’ve helped out another family.
YAY!
THE END
We are closing almost the same kind of deal on Thurs. the 16th with about the same profit expectation. Good going!
YAY! Good for you!
Mrs. Meltzer
I've been looking for "deals" like this now for a while. Where are they? There are so many "forcloseure" sites on the net and in the paper - they all want your money - nothing more.
I've yet to find a deal like this. Am I looking in the wrong places? I've also put ads out telling folks all about me, and what i do for people in different situations, et- no replies - and I live in one of the MOST POPULATED areas of the US - between Philly and New York. So what gives?
Don't give up!
These deals are out there. My suggestion is to go to your local county courthouse and find where the foreclosure listings are posted/advertised (for FREE). Then, go follow those leads.
It's a numbers game. Just keep on trying.
Hope This Helps,
Mrs. Meltzer
this deal is spelled out great, however, what do you do when there is a mortgage on the property and your credit won't allow you a loan to finance the deal? Can you close even when the due on sale clause my kick in?
Will title companies allow a closing take place without the unpaid existing mortgage?
I guess you just need the existing mortgage balance beforehand.........closing? please reply because i ran into this situation and i'm new to investing........
I highly suggest you do all of your research on the property before purchasing! Especially the existing mortgage balance.
Here are a few ideas you could do if the due on sale clause kicks in (which rarely happens) and you don't have the credit to qualify for a loan.
1. Get a hard money loan, credit isn't important. Money is loaned strictly on the equity in the property.
2. Sell the home to an investor and make a quick profit.
3. Get a partner that has money to get you out of these type of sticky situations.
Hope This Helps,
Mrs. Meltzer
a lot of great information here! If a due on sale clause is called, how long does the Bank gve you to pay the balance? 1,2,5 Days?? Or if it varies bank to bank, state to state what is the range? Just wondering how much time would be needed if you were going to try to use hard money. Thanks,
John, Lufos!!
Attorneys??? pay ommage to the great carma gods AFTER the sale?? I dont get it. seems like a square deal to me.....house was trashed helped the lady move paid all kinds of things. what makes you say that?
Deer Wheeler Dealer, and you too Mrs. Metzler
John kissed, but I can find no comment from me. Wat Hoppened?
I think it all went rather well. I think a good was done to all parties. The great god of Real Estate, da Clod, dun blessed the occasion. Is there a basis of a lawsuit. Man this country was conceived and dedicated by Layers er Lawyers of course there is, there always is. That's the Mercantile Society, "When in doubt sue." I hate it. Thats why I never practice. Like admitting you are a pimp. Well, actually the Pimp has a slightly increased social status, at least he performs a identifiable service. At least there is a positive result. I hope!!
An irate Real Estate Broker knocked me down the other day. So he is standing over me and he says "Well I supose you are going to sue me?" "Oh no!" says I, as from a prone position I knocked him on his ***** with one blow of my cane.
Moral: When you have a Real Estate Investor/Broker on the ground, use your boots.
With Affection Lucius
Lufos:
The cane was too good for that scoundrel.
One of the best lessons I learned from my
daddy was one day he took me on his knee and he said to me, "Son, never kick a man in the shins-------- if he's chewing tobacco".
So even with all the good deeds done...win/win. done deal- cough up another 10 grand!!....
Guess it goes with the engine I put in a ladys car, 10 months after she bought it with 100000 miles AS-IS. she drove all of 15030 miles. The last 30 miles of its life was with no water in it till she got home!
Some how she thought i shold be the one to get knocked down.
Sean
Great article and primer on the right way to do Subject To deal.
Thanks
John Merchant
This was extremely helpful. I realize it may be elementary to some but spelling everything out really gave me a good understanding of all the key steps in the process.
Let me get this straight, you are purchasing the equity in the homeowner's home for a paltry amount of $5,000-$7,000 (giving her roughly $500 cash) and you are going to take some $50,000 of her equity?
In other words, you are taking 90% of her equity and she gets 10%?
You are such a gentleman. (sarcasm added)
I have a friend who is about to go into foreclosure, and is trying desperately to sell her place, but she has no equity in it at this point (she re-financed last year). Can I help her at all?
I personally only purchase property that have equity. Each investor has a different method.
You might want to post this question in the Subject To forum on this site.
http://www.thecreativeinvestor.com/ViewForum34-1552.html
There are some very knowledgeable people on this board that can help you.
Hope This Helps,
Mrs. Meltzer
Please tell me where you get the money to take care of all of the sellers bills? Do you use your own? Also, do you negotiate with the bank to get the low price on the home before you do the sales and purchase contract with the seller?
Thanks
So, are you just paying off her loan with new financing for yourself on whatever she owes plus the arrears?