BiggerPockets

How is a short sale going to help your parents keep their property?

Is your father old enough to qualify for a reverse mortgage? Sounds like he's cash poor (limited income?) and house rich with tons of equity. If he's old enough, perhaps he can qualify for a reverse mortgage.

Otherwise, what's the issue that's keeping him from refinancing to get a lower and affordable payment? He's not underwater. Tons of equity so the LTV would be very low. Payments on a $250K, 5%, 30 year loan would be only about $1340 plus taxes and insurance. Anything you do with a private lender's going to be much more expensive than that. Should only need maybe $70K in income to qualify for that.

Unfortunately, if he's three months behind he already has some dings on his credit, and that may make this harder to get. But with so much equity, it seems like he could find a bank that would do that deal.

A short sale makes no sense because he owes much less than its worth.

If he's really ended up with no cash and no income, then selling the house seems like the only option. That's not going to keep him in the house, but it does get rid of a payment he can't afford. He has enough equity that he could get rid of the burden and have a nice chunk of change to buy something else or to live off of. Certainly if the other choice is to lose the property by foreclosure and get nothing, he will be MUCH better off to sell.

I'm really sorry you and your dad are in this position.

Given the value of the house and the loan amount, I doubt the bank would be willing to sell the note. They can foreclose and it should sell at auction for well over what it will take to pay them off. Your father would get the excess, but you can bet that will be less than if he sold it himself.

Honestly, if an investor were to buy the note, it would be with the intention of foreclosing so they could get the property. Since the property will sell for well over what's owed, the investor is only going to get a profit based on the discount they negotiate when they purchase the loan. Given all the equity, there's unlikely to be much of a discount, since the bank has nothing to lose by foreclosing.

If an investor bought the loan with the intention of continuing to collect the payments, they would need to buy at a significant discount to make it worthwhile. Banks are willing to loan money at 6%, investors aren't. But again, since it seems unlikely the bank will sell at a big discount, the investor would be unlikely to provide your dad with any reduction in payments.

Unless your father (and you, it seems) can come up with the income to support the payments, the bank is going to "pry it from his cold (but hopefully not) dead hands."

How many lease option deals are you talking about? Lease options are really little more than glorified rentals. Good ones will produce some income, but realistically not more than a hundred or two per property per month. So, I think he needs 18-20 to cover the payment on his house. Have that many people stopped paying? Is he perhaps assuming his cash flow is "rent - PITI" on these properties.

I'm having a hard time seeing how an investor either buying the note or buying the house would help. I think you're going to need to take a hard look at dad's finances and see if there is something that can be done to bring his expenses in line with the realistic income generated from his properties and any other sources of income. Sorry.