Buying Property from a Prison Inmate
So i've recently bought and rehabbed a house which my neighbors have appreciated, and we just moved in a few weeks ago. Interestingly enough there is still one more 'problem house' a few houses up from mine which is really the last major eye-sore in the neighborhood. The current squatter living in this property knocked on my door the other morning to inform me that he's moving out for 'cash for keys' that the bank has offered him to get out, and told me that the house will be going up for auction and that the balance on the loan was only $35k ... so he said I should buy it basically and fix it up like I did my current house.
So after giving this some thought, I figured i'd double check his claims against the docs at the county recorders office, and found that there might be an even better opportunity available here. The guy who owns the house is actually in prison (which i've just tracked him down and am working on getting in contact with him), but the house has actually not been foreclosed and has no trustee sale docs or a date for auction. So my thought is that the bank was B.S.ing him to get him out of the house and do the cash for keys deal. So the house wasn't foreclosed yet, but did go into default as of July 2014, so if i'm lucky I might be able to arrange a private sell between the owners and myself before foreclosure and having to deal with auction competition / banks etc. The amount of the original loan on this property (and appears to be 1st position) is only $49k and the remaining balance as of July was $20k plus interest and late fees. So I'm thinking I should offer this guy in prison something in the ball park of $23k to buy the house and put a little change in his pocket, then rehab the house (which is in rough shape, could take $40k isn) and then either rent or sell the house. I'll try to list out the #'s in an easier to read format.
Tax assessed value 2013 - $115k
Orig. loan amt. $49k
Current Bal. $20k + interest and late fees
estimated rehab costs - $30-$45k (still need to get harder #'s on this but after speaking with a contractor he thought the could do it for $40k or less)
So I guess my question is has anyone pursued a deal like this before buying from an inmate? Any suggestions, advice, warnings?
Thanks!