House in Pre-Foreclosure / Not sure how to proceed
I am a relatively new real estate investor, having purchased my first rental property last year and my second property this year -- both HUD foreclosures which we spent approximately 15K each to rehab. Now, I am looking for some advice or suggestions on haw I should proceed with the property next to our first rental home.
I recently learned that the property next to our first rental is vacant and has been since just after we got done rehabbing our place. So, for approximately one and a half years, the property has been vacant.
I tracked down the previous (or current?) owners of the property. They saw what we did to the house next to their house, so they know that we are investing in the neighborhood and not just slum lords. Hence, they are very friendly to me. This is a couple in their mid-60's, working class, and solid blue collar folks (that is the neighborhood's reputation). The wife's mother died about 2 years ago and she inherited her house. So, they moved into that house and essentially walked away from the property next to ours.
They have a mortgage on the property next to ours (held by Citi). After moving, they stopped paying on the mortgage. The gentleman told me that Citi threatened to foreclose on the property. He informed them that he was willing to walk away from the property. Citi asked the gentleman if he was interested in a short sale. He said NO, because Citi wanted all of this financial information and he didn't really care (he just wanted out of the property -- he is disabled and he and his wife have a perfectly nice home at this point, mortgage free. So in their mind, they have no incentive to do anything other than to walk away at this point).
After the gentleman told Citi that he was willing to walk away from the property, Citi then changed the locks and winterized the property at that point (a year and a half ago). The owners have not had access to the property since that time.
However, to date, Citi has not filed any foreclosure proceedings on the property. So in the mean time, title is still in the name of these owners. Property taxes haven't been paid and the property has remained vacant. So, this nice couple thought that the bank has already taken over the property and were surprised to learn that Citi has not even filed a foreclosure action yet. In the mean time, this property next to our property is vacant and becoming more and more compromised.
I am interested in purchasing the property and rehabbing it. The current owners would probably give me the property or sell it to me for a nominal fee because of our work on the property next door. Citi doesn't want the property. It would probably cost Citi more to go through foreclosure proceedings than the property could be sold for. Hence, they appear not to be actively pursing foreclosure proceedings at this time.
I am kind of at a loss on how to proceed at this point. The current owners gave me a contact number they had for Citi. And from what I can tell, I will need to get a letter of authorization from the borrowers to discuss the mortgage (which I am certain the borrowers would gladly sign). So, I plan on talking to Citi to see if I can work something out. I also thought about approaching the current owners with a Quit Claim Deed. But frankly, I really don't know what that would get me and I don't really see how that gets me closer to having free and clear title on the property.
Any suggestions that anyone has on how to proceed, I am all ears. I want this property for a couple of reasons. First, it will help the neighborhood. Second, I can get a fairly good return if I get the property cheap enough (even if I have to put in 15K in rehab costs). Third, I like the idea of owning 2 properties next to each other for convenience. And fourth, these houses, while small (2 br; appx 720 sq feet), are built to withstand a nuclear winter. The house has a poured concrete foundation and basement with a concrete first floor. They are just rock solid houses (though many, like this one, needs cosmetic work).
Thank you for any (and all) suggestions on how to proceed from here.