110K Equity Pre-forclosure, No Foreclosure Notice Yet
Hello folks,
I just received a call from a family with a pre-foreclosure situation. They are entering into their third month without making a payment, haven’t received a notice yet but have fielded a call from an agitated mortgage company person. Mortgage Lenders is the holder of the note. The property is in a trust.
The house has been appraised twice in the past seven months, both for refinancing, which fell through due to job loss, disability, etc. I ran a quick value check on www.Domania.com as well, and all three numbers come in between 225K and 235K. They bought the house 3 years ago this month for 117K. So they have approximately 110K in equity, and they know it. Obviously, the market in this part of the country makes actual short sales difficult because of all the equity that is inherent to virtually every property.
I got pretty deep into a pre-foreclosure deal last year; was in communication with the dreaded Fairbanks Mortgage Company, the lawyers, and had the whole deal ready to go as a subject-to. The plan was to repair and sell within 3 months of moving the sellers out.
Then the foreclosure notice hit the newspaper and a local person simply went to the sellers and paid the appraised value in cash. Excellent for the sellers, but I lost a cool $1500 I had spent thus far.
I do not want to put any cash out toward this deal, or at least I want to keep my outlay to a minimum. I don’t mind bringing in a cash investor if a deal can be arranged that is palatable to all parties. But even then I would be looking for a quick flip and as little holding time as possible. I am familiar with the regulations for Fannie Mae mortgage insurance and how that affects holding time. So I really want no holding time at all, if possible.
I know I could market this house and sell it quickly. I have a few ideas but have been out of the RE loop for about six months and need to brush-up my expertise. In the mean time I am meeting with the couple tomorrow and would value suggestions, ideas and strategies or other considerations :-?
Thank you,
wgheisler
A few things:
1. I went to the website you mentioned and tried it and thought the results were pretty worthless. Usually I say the first step is to determine the market value of the property. In this case though, you know you have considerable equity in the property and will likely make a nice profit unless the homeowner is trying to cut you thin.
2. You shouldn't need to spend any money on a short sale or transaction of any kind until you close.
3. What I would do is go to the sellers and tell them that you can help them and want to know how much money it will take for them to walk away from the property. Find out the mortgage balance and then see if the deal makes sense.
Keep in mind that you should catch up the mortgage payments and pay the homeowner their cash and then do as you please with the property.
I would not short sale this property. I would work to take the property sub2 and catch up the payments.
Thanks for the feedback, myfrogger.
Yes, www.Domania.com is useless for many parts of the country, unfortunately. I have found them very accurate in Massachusetts, however. That's why I considered their value of 225K and a good estimate as it is near the 227K and 235K that licensed appraisers quoted.
Taking the property subject-to is a good option, as you recommended.
I am also considering once I gain the seller's confidence,whether I can be written in as a beneficiary of the trust, and then simply market and sell the property. Does anybody have any ideas along those lines?
Thanks again,
wgheisler
In view of the present high spike in the market, I would simply buy the property. It would be nice to use a trust but if there is resistance just make a simple tender and set to close. In view of the time restraints and the need to cure the back payment situation just negotiate the price and go to close.
Here in Calif. I would go to escrow and have them signed and sealed and even execute a Grant Deed. I then advance the back payments and I might give them a secured interest by executing a note and Trust Deed for their equity interest. Holding escrow open I would then sell the property. Bring in my new buyer into a secondary escrow and have them close simultaneously. Your state is of course different being one of the first and thus closer to Common Law.
However in such situations it is important to tie the sale, perform as to back payments. Either buy out the equity interest of the Seller or secure such interest with a note secured by Deed of Trust/Mortgage.
Hope this is helpful and applicable to your situation.
The Best Lucius 8-) 8-)
wgheisler,
I have a good friend in the Massachusetts area that could help you on this one. He's taught other people how to do preforeclosures and taking them sub-2 before. He could hold your hand through this one and pretty much guarantee that you make good money on this with his help.
He goes around the country teaching people how to rehab, and he's done over 400 rehabs himself.
Shoot me an e-mail, or give me a call, and I'll see what I can do to help you out.
John