Wondering How To Proceed
Had a lady respond to a letter I wrote who is in FC and has a court sale date set, in about a month. She wants to keep the house and pay rent with an option to buy it back after a designated period.
Would this be worth pursuing and if so what would be the best course of action?
As you can tell, I'm fairly new and have previously just been involved in just outright sales.
Any advice would be appreciated. :-?
I'm a newbie but all the books say that you should avoid having the old tenant remain in the house where there has been a foreclosure. If the tenant must remain in the house, then that requirement is a deal killer.
Well she would rather lose the house and have foreclosure on her record rather than sell and come out clean? I've also read to not let the owners stay. If you really wanted to help her out. Buy it and lease option it to her for a large non refundable downpayment. Then again where is she going to get the money for a downpayment in she can't make the payments....another question is how is she going to pay you? I'd be very skeptical she'd pay you enough to make it worth you time when she can't make her payments now.
Thanks Roballen and scarywoody for your input. Pretty much what I thought but I was hoping I was missing something. C'est la vie!
Lease-Option back to the owner is used all the time. It is a very good option if the owner wants to stay in the house. You can then flip it to another investor. I suggest you post this in lease-option forum for details on how to structure the deal.
By the way, could you supply the following:
1) Total loans
2) FMV
3) Deliquent amount
4) Market Rent
5) Current PITI monthly payments
6) Date of Sale
Thanks
It's not done in California...unless you have some kind of deathwish. Read California Civil Code §1695.12.
wannabe21,
do you know if lease options are 'legal' in NJ? can you elaborate on why this would be a death wish in CA? Thanks.
I agree with the lease back option- it is all a matter of how you "write" the lease. Is the owner employed? Does she have the income to pay rent to you? Consult with the lease section- but here in Lake County Fl- itis done all the time. Many times the owner doesnt want to humiliate the family by moving them and or explain to other members what is going on. So staying in the home would be much easier emotional and obviouxly financially rather than moving.
Quote:
On 2004-08-19 20:47, MarleyLiv wrote:
wannabe21,
do you know if lease options are 'legal' in NJ? can you elaborate on why this would be a death wish in CA? Thanks.Okay...the lease/option is not the problem. They are legal in all 50 states.
No, the problem (and I speak for California) is the the owner of the home is in foreclosure. I'm not sure where my fellow Californian learned that lease/options are done all the time for owners in default, but I couldn't let that advice just sit there. Since you are in New Jersey you need to do your own research. If you are ignorant of the foreclosure regulations affecting your actions as an investor, then you have absolutely no business buying (pre)foreclosures until you are knowledgeable. Sure, most will get away with it for a while, until the first time a former owner decides that all that money you made should belong in their pocket...and they sue.
In California, the very moment that the Notice of Default is recorded, there are several laws in our state that work in harmony to put foreclosure owners on a (somewhat) more equal footing with foreclosure vultures...I mean, investors. California Civil Code §1695.12 essentially says that barring some very, very extaordinary evidence to the contrary, providing any option in any form to a foreclosure owner in exchange for title (regardless of any other consideration) is considered a loan. So, the investor can stand before the judge, hold up a perfectly valid deed and claim that the conveyance of title was legitimate, and that judge can point to legistlation stating you only made a loan and (after waving his gavel about in the air and saying the magic words) will change your deed into a mortgage.
So, anyone in California who thinks giving an option to an owner in foreclosure in exchange for title is a great idea has a deathwish. You guys in other states need to be careful, because who knows what judge might decide they like our way of doing things and legislate from the bench...overturning your deal in the process.
Hi everyone, I'm new to the board...
Wannabe21: "So, anyone in California who thinks giving an option to an owner in foreclosure in exchange for title is a great idea has a deathwish. "
Just for clarification... Are you saying that a simple, outright purchase, followed later by a rental agreement with the seller constitues an "option" making the rental agreement a defacto loan in California?
Nuetrino,
Hi there...and welcome aboard
I'm really not sure where I lost you because my language was very plain. We are talking about options, not rental agreements.
Let me state it this way. If you buy a house from an owner in foreclosure and at some point you sell that house back to the original owner, then the law says that you never took possession to begin with and all you did was provide a loan. Going further, if you provide that owner even the option of buying their property back, the law says you (the investor) have made a loan and not a purchase. And don't think that purchasing a partial interest and selling that back to the owner will work either. The court is also likely to look at how much profit you made on your "loan" and you may face charges of usary.
Is it okay to simply rent to that owner provided you offer no possibility to the homeowner of regaining ownership? That's a call you have to make, but it seems to me that your chances of facing a judge as a defendant go way up when you're forced to evict. I would much rather see them leave right away than to offer false hope...only prolonging the inevitable for many.
I'm sure it's hard not to feel for some of these people, and you really want to help them out all you can. But if you're in this as a business, you have to treat this like a business. We're not (hopefully) the kind of people that would throw someone into the street, so we need to assist them all we can with their move. But as for me, they've got to move.
Disclaimer: I am not an attorney and am not offering legal advice. Consult with your own attorney. What I have stated in this post and others in this thread is merely my opinion.
wannabe21,
If you wannabe precise about what the law in California say, then here is what is says:
"In any transaction in which an equity seller purports to
grant a residence in foreclosure to an equity purchaser by any
instrument which appears to be an absolute conveyance and reserves to
himself or herself or is given by the equity purchaser an option to
repurchase, such transaction shall create a presumption affecting the
burden of proof, which may be overcome by clear and convincing
evidence to the contrary that the transaction is a loan transaction,
and the purported absolute conveyance is a mortgage;"
Please notice the word "may". Just out of curiosity, does your knowledge of this issue comes from personal experience or from reading pre-forclosure laws??
I am expressing my opinion, and have a right to do so as much as anyone posting on this forum, including you.
Let's just say, that whatever you expressed in this posting is just your opinion.... an we'll leave it at that.
Well for the record I think Wannabe21's take on extending an "option to repurchase" to a seller is right on. I have to agree that options clearly threaten an equity purchase in CA. The law appears heavily weighted in favor of the seller and the basis for it is explained in the beginning of the code i.e. unscrupulous investors taking advantage of vunerable sellers. The word "may" to me means as determined by the court. Given the background of the law in question, I concur , its not the position I would want to be in.
Nuetrino,
If you think there are no complications with pre-foreclosure properties other then lease-options or possibly renting back to the owner, you should not be buying pre-foreclosures.
Any time you deal with pre-foreclosures there are complications!!! There is a degree of risk that comes with any deal.
Roballen,
Let me be the first to apologize for letting your post take off on such a tangent. Perhaps the one thing that noone else has noticed is that your question was never answered.
Your original question was regarding a non-owner occupied property that goes to foreclosure, and whether or not the tenant should stay. To this question I have no answer, but it would be nice if someone would chime in to answer it.
"If you think there are no complications with pre-foreclosure properties ...... you should not be buying pre-foreclosures."
"Any time you deal with pre-foreclosures there are complications!!! "
REALLY?? :-o
Ummm... OK, ..... If I ever hit my head and forget the pitifully obvious I'll be sure to reflect on your words.
As a newbie, It seems clear that you cannot do these type deals in foreclosure, but what about pre-foreclosure???
This issue has been around for a long time. I am not sure if any of the posts addressed this, but the concern is that if an option to buy back is declared to be a loan, then the loan is very likely to be usurious and subject to some very heavy penalties.
I had a situation where I bought a preforeclosure property last year and agreed to lease back to the previous owner. The former owner came to me with the idea of buying it back. I was very sure that there was plenty of evidence that I had not offered to sell the house back as a condition of the purchase.
Also, years ago I did a number of paper transactions including buying paper at a very big discount and giving the seller an option of buying the note back (with a nice profit for me). The usury issue came up then and I was very careful to keep people that I dealt with very happy. I don't think I would do such transactions in today's litigious society.
Regards to all,
Ed