Tricky HELOC situation on inherited property

12 Replies

First off, let me say thanks to everyone on here who has interacted/answered questions so far; I think I've vastly underused this resource. 

Anyway, I went to look at an inherited property that could have made a great deal. ARV is about 110k, and it needs a complete gut rehab.

Here's the issue: The home belonged to the wife's mother, and the wife inherited it. Before her mother passed away, the wife's sister got her mother to take out a HELOC for the sister. The sister spent it all and never paid it.

It gets juicier. 

The sister dies, and now I guess there's a lien on the house b/c of the unpaid HELOC, which is around 50k.

I had offered her 20k, but there's the HELOC issue...

So, (and I apologize if this seems like a stupid question) can a short-sale be done in this situation? 



I think your best bet is to check with a local real estate attorney to know for sure. Now my situation wasn't exactly the same, however, my first house purchase (in Indiana) was 203k fha loan on a short sale house that had 2 mortgages. I don't know exactly what the second mortgage was for, however, the house was built in 2000 and my realtor (based on other information he gathered) believed the basement was fully finished in 2007 (estimated $50k renovation). So, I believe a HELOC was taken out to finish the basement.

The bank approved my offer within 30 days (incredible) but the deal almost fell through because the 2nd lien holder wasn't notified of the short sale. This part is hazy but I wanted to say my realtor told me they needed to agree to accept less for the debt but if they didn't, it would go to foreclosure and they would lose the ability to collect anything? I'm not sure how true that last part is but that's what I was told.

Good luck!

Doesn't look tricky to me. The HELOC is like any other loan and needs to be paid. If the property is worth at least $50K, the lender isn't going to short sell it for less than what they are owed. What's the current market value?

Thanks for the responses. Kristine Marie Poe , I think the current market value is probably 25-30k max. 

If the current market value is less than the loan amount, a short sale might make sense. Who's on title?  Did the daughter take title after the mother died, or is it still in the mother's name?  

Hmm, that's a good question; I'm going to ask her that when I follow up- thanks. 

on the tax records it says her mother's name, c/o daughter. 

Looks you might have a challenge there.  The daughter can't sell you the property if she doesn't own it or have powers to sell it.  Any chance the property is held in a trust?  If not, and there's not been any probate action to give the daughter powers to sign, you can't buy it from her.  

There are other strategies, like buying the note from the lender and foreclosing on it, but that's not for beginners and it requires some cash.  

Confirm the title and estate situation with the daughter.  Hopefully there's some info we are missing.  

Wow, thanks for this information- you know your stuff. I'll check into those things you mentioned. There's a rehabber who I think would be very interested in this for the right price, and I like the sound of that note-buying strategy. Very cool- thanks. 

Your chances of buying the note are very slim, I'd say miniscule.  Most large lenders don't sell their notes individually.  But there's always a possibility.  You have to look at who the lender is and/or who owns the note and see if you can even find someone to negotiate with.

For the most part, heirs don't deal with transferring title on property that is upside down. Who wants to pay cash out of pocket to an attorney and court fees to get powers in order to short sale something on which you won't profit.    

Hmm, good points, and more information to find out. The term "you don't know what you don't know" applies to me in this situation- haha; good thing you're here. 

You can absolutely Short Sale a HELOC mortgage, same process as every other Short Sale.

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