First Deal, Many Questions
This message board has been terrific and it has given me the confidence I needed to stop dreaming and start doing! Please give me some direction on this. The mortgage is assumable and is a very small payment. The house needs minor repair, most cosmetic, some plumbing. The problem with the deal is that the homeowner filed bankruptcy, but they did not include the home. The mortgage company waited to file their foreclosure because they thought the homeowner would include the mortgage in their bankruptcy. I received the foreclosure statement and they need $11,000.00 to stop the foreclosure. The owners have not paid their mortgage for 18 months! I looked at comps in the area and I think they paid a little too much when they bought the place. There is little equity, but there is positive cash flow after all of that because the payment is so small. The owners ran into trouble because their taxes went up causing a negative escrow and it almost doubled their payment but escrow will be back in the black once the $11,000 is paid. Sorry for the long post.. After all of that I am concerned about the bankruptcy. I do not know anything about the bankruptcy laws and I remember reading a post about a bankruptcy and the investor lost all of thier money in the deal. I think this property would be good for rental or l/o. What should I do? Thanks! :-?
Did you already assume the loan? If not, then have the seller sign an authorization to release form so you can speak with the lender. Even if the seller had included the property in the bankruptcy, it doesn't necessarily mean the loan will not be owed. A mortgage is secured by property, so the bankruptcy would only stall the foreclosure auction and not eliminate it.
Once you have the authorization to release form signed, then call the bank. The letter you received recently should have a phone number for a workout or foreclosure department. Explain to them that you would like to purchase the property. Remember, bank's don't like to lose money. Be honest with them and ask them if they would allow a short sale or add the payments to the end of the loan so you can assume it. You should be able to work something out if you show that you are serious about buying the house.
Tanya
Thanks Tanya,
Short Sale, is something I have not read up on yet. What is it? So when I speak with the bank I should ask for a balloon payment for what is currently owed?
Thanks Again! :-D
PS- Have not assumed loan yet! :-D
A short sale is when you negotiate with a lender to purchase a property for less than what is owed (loan balance). For example, if a property is worth $100,000 and the loan balance is $95,000 and repairs estimate around $10,000, then you can negotiate with the lender for a discount on the loan so you can buy the house for around $80,000. But, the lender has to allow you to submit a short sale request or proposal.
Have the seller sign an authorization to release form, which allows the lender to release any information about their loan to you. Then call the lender at the phone number provided on the most recent letter the homeowner received. It's usually the workout department or foreclosure department. Explain to them that you would like to purchase the property from the seller, but you would like to know if they would consider a discount on the loan. You can ask them if you can assume the loan and negotiate the $11,000 the seller owes to bring the mortgage current. Ask them if they could add the payments to the back of the loan. Find out what the lender is willing to allow and not allow. Start asking questions! You will never know until you ask...
Tanya
Tayna (or whoever else can answer),
When someone negotiates the loan down in order to purchase a property short, does doing so affect the original borrows credit?
If so, how do you generally handle this with the borrower? I'm guessing its not too big a problem since their credit would be worse if they foreclosed. However, it occurs to me that, knowing that you will short the loan, the owner might seek other investors with other solutions.
comments?
Thanks
if he declared bankruptcy the house has to be part of it. thats the whole point. the trustee has to determine assets and liabilities. you can not buy or assume anything while there is a bankruptcy pending. the trustee owns the house for the time being.
Thanks lp1, I need to get more info on the bankruptcy because I think his wife only filed. According to her they have already went to court and they are now in the process of getting the bankruptcy discharged. I am meeting with them today and will ask more questions.
Thanks again everyone.
viking,
If the original borrower is in foreclosure, then most likely their credit is already messed up. If the property goes through the foreclosure auction, then it will be on their credit for the next 7 years and make it very hard for them to get another loan. If you do a short sale and close before the auction, then it will not be as detrimental to their credit.
Please note that when a short sale is accepted, the bank is taking a loss. (i.e., $100,000 property shotrted to you for $60,000, the bank just took a $40,000 loss). THe bank can do one of three things: the bank can seek a deficieny judgment, the bank can just forget it and take the loss, the bank can send the homeowner a 1099 for the short saled amount which is now income. You can ask the bank to waive any defiency judgments so they will not go after the borrower for the loss. It's not a guarantee they will waive it, but you never know until you ask...
You can give the homeowner's your offer and decide that the maximum amount you are willing to pay for the property or give the owner. When another investor counter-offers, then you can counter-offer back until you get to your breaking point. Then I would leave it and move onto another deal. Don't let 5 deals pass you by while you're too busy working on this 1 deal. John (LV) says, the hardest part of this business is learning to say NO!
lp1,
You are correct, if the bankruptcy proceedings are still ongoing, then you cannot do anything until it is done. But, I assume that if the seller received a foreclosure statement stating they want $11,000 to stop the foreclosure, then the bankruptcy proceedings are done and the lender is picking up where they left off. The mortgage is attached to the property, so even if the homeowner declared bankruptcy the loan is still secured by the real estate. So, they technically have the right to continue with the foreclosure until the debt is cleared.
Thank you Tanya1215. You have given me a lot of ideas. If the bank will not give me what I want, I will have no choice but to walk. Thanks!
More questions!
Long story short, bankruptcy not an issue. Since I want to try to get the lender to put the $11,000 on the end of the mortgage, (I want to assume loan) should I treat this somewhat like a short sale? Get pictures of damage, comps, etc. Also, I found out some more interesting issues in the appraisal. The appraisal stated the home had central air, it does not. The homeowner stated everything went very quick when they bought the home. On the contract to purchase, a number was changed and the seller ended up with $1000.00 more than agreeded upon. HUD investigated the seller. The seller is no longer able to purchase HUD homes. The loan officer was fired, but once HUD investigated, the homeowners heard nothing further. The homeowners are hardworking people who didn't look at what they were signing. They just wanted a home. Anyway, should I mention any or all of this in the proposal? Thanks! :-D
will there be enough in this deal for all the trouble? :-?
tosf,
If you assume the loan, then they may not allow the short sale. They might reduce the $11,000 so that you can take over the payments without paying the $11,000 up front. But, you probably won't be allowed to assume the loan for less than what is owed. When you assume the loan, then you are taking the borrower's place as the new borrower.
I think you should speak with the lender to find out what they will allow. It doesn't hurt to mention those details to the representative when you speak to them about either assuming the loan or performing a short sale to compensate for the actual "as-is" value of the property. You should also read the mortgage documents to know what you are assuming. I would probably find a mortgage broker to pre-approve me for a loan and then submit a short sale package and include the pre-approval letter showing you are serious about purchasing the property. If they accept, then close on the property.
Tanya[ Edited by tanya1215 on Date 03/30/2004 ]
thank you, you've been a big help.