Foreclosure Help
I have found an owner who is facing foreclosure for the second time. He used bankruptcy to delay the first time, but his filing was dismissed and it is just a matter of time before he is back on schedule for foreclosure. The home was appraised last year for $312,000, and the lenders attorney sent a set payoff letter last week for $229,000. Seller wants to get as much equity out as a buyer is willing to give him as quickly as possible. For those who have done a deal like this can you help a newbie decide what to do next. [ Edited by nrohtevets on Date 11/03/2003 ]
What you need to do, is get a loan autorization form, and find out what they owe. You might find out that they owe a lot more on the two than you are willing to work with. and also check out any back taxes they may owe
Usually there is a minimum period required for public notices are posted, usually in local newspapers. I believe in CA it is about 21 days. You didn't mention how quickly you could close.
If you have cash or a line of credit to cover the purchase, you can likely close on time. If you have to arrange for new financing from a lender it becomes more of a challenge. The issue is how much time it will take to procure the loan.
What worked for me on one foreclosure transaction is that the foreclosing lender allowed me 30 days before foreclosing if I put up an irrevocable amount of money that would apply to the loan payoff if we closed in 30 days. If not, the money was gone. This got more exciting than I had anticipated because we closed on day 29! I had $15,000 at risk.
You also need to check on other liens on the property since people in foreclosure often have other liens. It looks like there is plenty of equity, but a title search is certainly called for. Keep in mind that the amount on the recorded lien may not be current since other charges may have accrued since the lien was recorded.
I hope this helps.
Regards,
Ed
I have check for other liens, and there are none. I asked the owner to get a current amount due from the lender, and the $229K figure was the total amount due according to the lender and their attorney. The owner has it in writing from the attorney that the figure is good until November end. I am very new to this and I do not have any lines of credit set up, and I do not have any idea how much I should offer the owner so he can get his equity out. Should I try to negotiate the lenders amount due as well. I have ran comps in the area and they fall in a range of 310K to 340K. For a first deal this looks to be a good one, but I need help bigtime. I may even need a partner.
Hi nrohtevets,
You may be able to buy the property subject-to, it depends how long you have before auction. If the seller deeds you the house, you can bring the loan current and place a silent listing on the property (no sign in the yard). Tell the seller that you will give them $500 - $1000 moving money and an additional $5,000 or more when the property sells. Make him feel that his $5,000 is secure by placing a 2nd on the property.
Buying the house this way will keep your cash out-put to the minimum. Here are the essentials that you will need dollars for:
A) Bring the Loan Current
B) Moving Money to seller
C) Money to pay the mortgage until it sells.
Even though you will pay a realtor a heafty commission, I would definately list it on the mls with atleast 3% going to the selling agent. If you want to sell it faster, you may offer the selling agent 4%! There is a great potential for you to make tens of thousands of dollars on this one transaction if it is done properly!
Due to te equity spread, the lenders have no reason to give you any kind of discount. Their position is safe and sound.
In order for this transaction to work, you cannot give the seller too much, the risk to you would be too great. Even though he may want $50,000 cash to walk away, the reality is that even if he sold it himself, he would only get a fraction of that amount. Make him a soft offer, and if he is not flexible, at this price range, be prepared to walk away.
Best of Success!
BAMZ
BAMZ,
I am a bit confused on this one. Maybe I am running some numbers wrong here but can you please explain 2 things for me:
1. How would a 2nd mortgage placed by you on a property make the owner feel secure and what is the amount of the 2nd you would use?
2. If house appraises at 312,000 and owner would sell it on his own with 6% Realtor commission and payoff of 229,000 to the first it would still yield to the original owner more then 64,000 of equity. Why would he be able to only get a fraction of the 50,000?
Thanks in advance,
PerLuser.
Perluser,
1) I dont know how I can be more clear on this . . . but if you place and record a 2nd mortgage against the property, the title company will see that lein and the seller will get paid when the house sells, guaranteed! The non secured options are to give them a verbal promise or even complete a promissory note. There is no guarantee or security in those options without legal attention.
2) For the simplicity of the explanation, I was using rough numbers. It is very uncommon to sell a house for what it appraises for, buyers still want to negotiate! And with that in mind, and depending on the condition of the property, that appraisal may not be applicable to the active market. So if he tried to put it on the market himself, and it needed some fix-up / clean-up, at that price range, that listing could be on the market for up to a year, especially if you are going into a soft market for the winter. So he does in fact run the risk of getting ZERO, because by that time the bank will have already foreclosed and evicted him!
Hope that clears it up for you!
BAMZ
Thanks BAMZ!
Just wanted to make sure I understand it correctly.
PerlUser.
In my Loss Mitigation business, I have been successful in getting my foreclosure clients' sale dates postponed by faxing a contract for sale, earnest money agreement and the buyers proof of funds or a commitment letter from the purchaser's mortgage company.
That can give you up to a 45 day breathing space giving you the opprotunity to do your due diligence and turn this good looking deal into a closed deal.