BiggerPockets

Forgive me if this is not the correct forum....

I need help working through an issue in our hunt for land to build a home.

So I live in a small Sububan Chicago town. So small and desirable that there aren't many vacant lots left in town.

I call a guy that is selling his lot (the lot adjacent to my Father's childhood home) and he is asking $240,000 at the time of the call in the summer of 2010.

My search is still going on at the end of 2010 when I learn that the lot owner is acting as the "General Contractor" on my best friends addition. My wife and I decide it is time to approach him again since the property is still available. I plan on calling the guy on a Sunday and my best friend calls me the day before and tells me the lot owner has been served and is looking to get rid of it for what he owes on it which is $150,000. My wife and I are more than excited...

I start doing some research with an appraiser friend of mine and he tells me I might be able to get it a little cheaper, more like $125,000.

I meet the lot owner and starts telling me how he is in a tough spot and just wants to get out of the property for what he owes. I tell him it might be worth a little less. He tells me that he owes about $80,000 on the first mortgage and then he took out an equity line against the home (before it burned down) of about $70,000. He said he will talk to the bank and see if they will negotiate on the equity line. He agrees to call me back after he gets in touch with them in the next day or two. A week goes by and I leave a message for him, another couple days go by and he calls me and tells me that the bank told him to wait for a "package" in the mail that will include his payoff amounts. He got the package and the first one was for about 80k and the second one was for $681,000. He said the band screwed-up and the name is correct on the documents but the loan number is wrong and that he would have to get it straightened out. I then told him that I will just pay what he owes on the property and told him I would like to write up a contract for the property so we have something to present to the bank. He kind of blew it off and said "ok, but let me try to work this out with the bank first". That was two weeks ago and I haven't heard from him since.

During the time spent waiting for him to call back I went to the county and found out he bought the property in 1990 for 78k. In 2003 he refinanced for 114k. Then in 2004 he took out a second mortgage for 70k. In December of 2004 his house burnt down and according to him the insurance company gave him $80,000. I'm assuming he took 30k and put it towards the 114k and pocketed the other 50k. The county also told me that the first property is in foreclosure but the second mortgage is not.

I tried dealing with the bank and they didn't give me any help or I was talking to the wrong person.

My questions is...how do I go about buying this property with a homeowner that isn't interested in selling and a bank that really doesn't own the property.

I am sorry this is so long but any help would be appreciated.

Jerry

Jerry Planek - please let us know what happened here, the story seemed to be getting good.

I like Dan's second option. Most builders, in my experience, don't check sheriff sales for vacant land. Especially today when 95% of the properties are under water and will be going to the bank. My thought is that this one will fly under the radar.

Keep track of this, run a title search when the auction date is set (give yourself at least 2 weeks for the title report to come back) and buy it at the auction while you extinguish all junior liens. Also don't forget to check city for tax liens AND do all environmental testing. Don't know about Chi town but here in NJ, leaking underground storage tanks (that used to service oil furnaces) are a huge concern.

Another option is to buy the 1st at a discount and foreclose on the 2nd.

So last week this property came up on the sheriffs foreclosure list. I started doing my homework on buying property at auction...

Guess who calls me this weekend? The guy who has been avoiding me for the last 11 months.

He tells me he finally got an answer from his bank. His second mortgage has a lien on the first for $18,000. He tells me that one will have to be "settled" first and then the property can be sold for what is owed on it, $158,000. That $18,000 will go towards what is owed on the lot making the balance $140,000.

Couple things here...

1. I think 158k might be a little rich for the lot but it really is the ideal lot for us and I have little faith that anything else will come up that is this nice. Is there a possibility for a short sale in any of your opinions?

2. Does anyone know if the 18k can be used towards my downpayment? I won't be able to front the 18k to clear the lien and then another 35% down for the vacant lot loan.

3. Does anyone know if the bank will just let me take over his payments? That would be ideal.

4. If I am buying the property for what is owed on it, why do I have to pay for the lien before being able to buy the lot? Either way the second mortgage is getting their $$$. I feel a little uncomfortable paying this lien off prior to buying the property. I just feel like I am leaving myself open to be taking advantage of.

5. The lot to an investor/ builder is probably worth around $100k. To a homeowner I think it is worth around 125-135k. At 158k it is too much in my opinion. Does anybody have any suggestions for getting the property for less?

So after all this time things are starting to move for us a little bit but not in the ideal situation for us.

If anyone can help with any suggestions we would greatly appreciate it.

Jerry

I think the seller is yanking your chain.Even if the seller has the best of intentions they could be giving you the wrong information.

This is why you go straight to the bank.First look at the first mortgage and who owns it.Is it a local,regional,or national bank??

Then once you find this out you need to speak to right person.Redemption rights is what you need to know and foreclosure time line and cost for your state.

Why not just try and buy the first note at a discount and then start to foreclose?? OR you can also approach the second to buy theirs at a discount or you will wipe them out.

To do this approach you need all cash to buy the notes.

For auction at the steps if you go that route you need to find out if you can put money down and get financing or have to pay all cash.

You need to be talking to the bank on this one.I have seen sellers do all kinds of crazy stuff that doesn't help you as a buyer but is looking out for the seller.If you don't have control and get the info from the horses mouth then don't do the deal.

Joel and Stu give good answers. If you decide to go to the auction, start your bid lower than the upset amount. The plaintiff (lender) may accept a lower bid just to get rid of the property. A discussion with an attorney familiar with auctions in your county is advised.

I am just in a holding pattern until the auction Stu. I don't think he is going to put much effort into making a short sale happen.