Short Sale A Subject To?
Im in the process of putting a preforeclosure property under contract with two mortgages and my strategy is as such. The homeowner is behind four months with little equity I want to take the property subject to the first mortgage but get the second mortgage discounted creating equity and then finding a buyer to lease option the property or provide owner financing on a wrap is this scenario sound?
Thank You.
What are your numbers? What is the FMV, repairs required, payoff of first, payoff on second, and what is the market like in your area?
FMV is about 275k first mortgage is 181k and second is 69k the market in this area of south florida is cool. Thanks.
How are you planning on paying for the discounted second and arrearage on the first? With your own funds?
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If they approve and discount the second I plan on paying with it from a tenant/buyers option fee or if I do owner financing the down payment id get from a buyer. As far as the first mortgage I plan on getting it worked into the payments, applied to the principal, or using buyer or option money to bring payments current is all this feasible. Thank you.
polkill, you will have a hard time getting anyont to give you over 10k for a L/O. It takes me about 6 weeks to find a L/O buyer.
Try to figure out how much money you will need once you short the second and bring the first current.
Also, is the first an ARM or a fixed? What is the PITI you are projecting? It the house older or are there any repairs anticipated? What kind of rent can you anticipate getting from your L/O buyer?
I think it is ambious to short a second and bring a first current with no money out of pocket - even with a L/O buyer.
First the first is a fixed mortgage piti should be about 1800 the house is a 3/2 with a den and swimming pool in excellent condition will show well and It should rent for about 2300 dollars a month easy. I know it would take at least 10k to bring the mortgage current but if I did some type of work out Im hoping to be able to shave some of that off I know Ill have to probably come out of pocket some but if I advertised owner financing couldnt I get more down? Thanks
Did you get the warranty deed in your name? Did you have a title company do the closing? Did you even have a closing?
Bargain King,
I got a little lost when you said to buy the 2nd, rather than paying it off.
Since you have the deed from the Sub2, you are the property owner of record. Buying the second would have you with a lien payable to yourself. ??
What would this accomplish? What am I missing?
Because it creates instant equity!
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If the subject-to goes well and you buy the 2nd, can they be in the same name or do you need to have title in one name and the loan in another (ie 2 seperate LLCs that you own or an LLC and your personal name)? I guess what I am wondering is if you can have a mortgage in your name on your own property.
Thanks, Bargain King. I now understand where you are coming from.
Although I would think a person would have to be quite naive to fund the purchase of the second without firmly nailing down the reinstatement and securing the deed. But I can see where a seller might have a problem with these funds being escrowed. If so, purchasing the second as you recommend, makes more sense.
And the threat of legal action is always a possibility in any transaction. However, proper strucuring and dislosure can minimize the likelihood. I see a lot of newbies leaving themselves exposed to this.
Thanks again for your explanation.
Thanks for the reply everyone. Working on the deal now. Will let you know how everything turns out.
And you could always do these deals with zero cash by using private lenders to fund buying the discounted second (you will be given an Assignment of Mortgage), and then after recording your Assignment, record a Satisfaction of Mortgage (erasing it), so your private lender can hold a second position. You should also borrow enough to catch up payments on the first mortgage, as well as three monthly payments (so you have time to sell it--in my case with a L/O). The loan with the private lender can be arranged as interest only with principal due upon resale.
Tbird, the holder of the first has no choice but to allow reinstatement once you own the second. They can no longer call their Note due and must allow the holder of the second assume payments.
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"A deal is only as good as the quality of your Contracts." --Me[ Edited by LeaseOptionKing on Date 06/28/2007 ]
Excellent point, LOK!!!
: )
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Third, the holder of the first has no choice but to allow reinstatement once you own the second. They can no longer call their Note due and must allow the holder of the second assume payments.
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On 2007-06-28 11:37, LeaseOptionKing wrote:
Tbird, the holder of the first has no choice but to allow reinstatement once you own the second. They can no longer call their Note due and must allow the holder of the second assume payments.
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Sorry, but this is an absolutely untrue statement. The holder of the first is under no obligation to allow the second holder to assume payments. I know this for a fact, as I have encounted it several times.
In fact, the holder of the first is under no obligation to notify the second holder. If it goes to sale, the second holder may be required to pay off the first to protect his position.
As a matter of practicality, the lender often does allow it, provided you qualify credit wise. But it is hardly a given.
How do you purchase a 2nd? What do you say to the negotiator? (In foreclosure).
LOK is absolutely correct! Once you buy the note then you catch the first up and foreclose on the second, giving you bargaining position for a short sale on the first. All day long.
Or get the Deed "in lieu of foreclosure."
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Smagnolia,
Glad to meet you.
Rule number one, never let the seller stay in the property.
Rule number two, see rule number one.
It looks like this person is just looking for a loan on his property and to tie up this type of money on Subject To deal when you can purchase 15-20 houses with the same money and make 20 times what you would on this one is not money well invested.
I would guess the loan is not assumable, as assumable loans have not been around for many years and from what the seller currently owes it is very unlikely that it is assumable.
Bottom line, from the questions you are asking, you should not even consider creative investing until you are well versed in structuring a Subject To deal. This also answers the "Should I go for this deal?"
John $Cash$ Locke
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Thank you for your answer. You are right, I am not well versed in subject-to deals hence the question. I am a rehabber and that is my forte. Analyzing deals for rehabbing and straight loans, not creative loans!!
Any place practical where I can get such hands on training?? My RE invesment club people are not too generous with imparting info.