Underwater and highly motivated seller

13 Replies

I know this is a long shot, but I got a call from a gentleman today who lives in California and owns a 6-year old 1200+ sq foot house in Charlotte.  3br/2.5ba.  Has had renters in it from day one.  The last of which was 5 guys, none of whom paid any rent.  The property manager didn't lift a finger to help him either.  They are gone now thankfully.

Current mortgage about $110k, 5 months behind at $737/mo. ARV in the area appears to run between $80-85k for similar sq footage.

He got sick of it all and sent the keys to the bank, telling them he was done.  Of course, the "Love Letters" and other warnings are flooding his mailbox.  

Is there any way to save his 700+ FICO score (and make money too)?

(I reminded him that when I lost my house in California and moved to NC, the bank sued and was going to send repo guys, with the Sherrif's escort, to my home to liquidate my belongings.  I stopped it with a filing for BK, which was denied anyway).

1) If he is 7 months behind on his mortgage he most certainly does NOT have a 700 FICO score.

2) If you're a licensed REALTOR you can help him work his way out of the house through a short sale.

**Would be great admins or whatever you're called here to get a sticky or a notice on the wholesaling forum that you can't make money if your potential wholesaling client is under water. The second you see they're underwater is the second you should be on to another deal because nothing is ever going to happen for a wholesaler with an underwater house.

Originally posted by @JR T. :

1) If he is 7 months behind on his mortgage he most certainly does NOT have a 700 FICO score.

2) If you're a licensed REALTOR you can help him work his way out of the house through a short sale.

**Would be great admins or whatever you're called here to get a sticky or a notice on the wholesaling forum that you can't make money if your potential wholesaling client is under water. The second you see they're underwater is the second you should be on to another deal because nothing is ever going to happen for a wholesaler with an underwater house.

 5 months behind, and yes, I'm pretty sure his 700+ FICO is no longer there and is falling like a rock.

Understand, this is not intended to be a wholesale deal.  I'm not THAT stupid.  I was just looking for options for him that would also benefit me.  He did say that he didn't want to short sale because he didn't like the personal questions the bank was asking him.  That kind of shocked me to say the least.  He asked me if I could "Subject To" the property.  I told him that 1. I'm not an expert in Subject To, and 2. I don't think I would be willing to lose that much money in a Subject To.  I don't even think the rents in that new house would support more than about $1100/mo.  

If there is no way other than short sale, I will let him know. 

He sure didn't object to taking the bank's money. Now he has a problem answering their questions as they endeavor to forgive part of his debt? **** him.

Originally posted by @JR T. :

He sure didn't object to taking the bank's money. Now he has a problem answering their questions as they endeavor to forgive part of his debt? **** him.

Yes, perhaps "**** him" is the appropriate thought, but just as in any business I have ever been involved in, if I can find a way to help a client or potential client, it just makes me that much better (and people talk) and increases my chances of getting something in return.  He lives seven miles from a buttload of my inlaws.  He *might* be handy with a leaf blower or paint brush.  

HA!

@Raphael Cuthbertson Sometimes the best service you can provide a client is to sit them down like a stern parent and tell them when they're wrong. If he has any remaining self-worth whatsoever he will talk - about how much he respects you.

It sounds like a great opportunity for a sub2 to me.  He's willing to walk away from the property and is done talking to the bank.

Provided the property isn't totally trashed and in need of a lot of work, you might be able to reinstate the loan and get into this for under $5K.

Depending on the property (and in-law management), you may be able to cash flow a couple hundred bucks a month.  This means that you can recover your costs in a couple of years--a pretty decent cash-on-cash return.

Although I'm pretty conservative and like my equity, I have bunch of clients that will buy as many of these as they can find: low down, no bank, positive cash-flow.

Think about what your portfolio might look like in 10-20-30 years if you pick up a few of these every year.

If you ignore the upside down equity position, how does the property look otherwise?

@Raphael Cuthbertson I agree with @William Hochstedler seems like a very solid subject 2 option. I did a weekend workshop on them put on by Chris Goff. He's a BPer but I'm not sure how active he is. The workshop was pretty solid and I learned a good amount so if you want any of the specific forms/documents he provided shoot me an email I'd be happy to send them to you.

Good luck!

Originally posted by @William Hochstedler :

It sounds like a great opportunity for a sub2 to me.  He's willing to walk away from the property and is done talking to the bank.

Provided the property isn't totally trashed and in need of a lot of work, you might be able to reinstate the loan and get into this for under $5K.

Depending on the property (and in-law management), you may be able to cash flow a couple hundred bucks a month.  This means that you can recover your costs in a couple of years--a pretty decent cash-on-cash return.

Although I'm pretty conservative and like my equity, I have bunch of clients that will buy as many of these as they can find: low down, no bank, positive cash-flow.

Think about what your portfolio might look like in 10-20-30 years if you pick up a few of these every year.

If you ignore the upside down equity position, how does the property look otherwise?

 I haven't driven by it yet.  There are no keys (all sent back to the lender) but I intend to take a look for curiosity sake. The house is only six years old, but I know exactly what a bunch of non-rent-paying slugs can do to a property, especially when the code violation was for having cars parked all over the front yard.

Being that I'm not a "Subject To" expert, my instinct says tell him to go forth on the short sale, but if I can find someone interested in doing a Sub2 deal, I'll hand it over to them for a cup of coffee.

Originally posted by @Jasmine S. :

@Raphael Cuthbertson I agree with @William Hochstedler seems like a very solid subject 2 option. I did a weekend workshop on them put on by Chris Goff. He's a BPer but I'm not sure how active he is. The workshop was pretty solid and I learned a good amount so if you want any of the specific forms/documents he provided shoot me an email I'd be happy to send them to you.

Good luck!

 Thanks Jasmine!

@Raphael Cuthbertson   I would suggest doing a Short Sale. If the borrower still has some utilities in his name to try and prove occupancy he could still try and get 10K for the HAFA program.

The Bank is not going to ask him many personal questions, they will ask for bank statements, pay stubs and tax returns.

They will only have questions if they find certain things in those documents like income that was not reported, transfers from or to unknown bank accounts, other properties owned that have not been reported in any of the applications.

Thanks Jorge!

This case keeps getting weirder and weirder.  I drove by the house today since I was in the area.  Guess what?  There are people living there.  I took pictures of the cars, the kids toys, etc and sent to him.  He is livid.  Fun thing is, when he asked for the key back from the former property manager, he got an envelope with nothing in it.  The last time he was in town (about six months ago), the previous tenants had already vacated.  The property manager had put a lockbox on the property with the key in it.  It was after his last visit that he got the empty envelope (torn open) with no key.  Now, he has a squatter problem and he thinks the property manager has been renting it out and taking the money.

He is not interested in a wrap around ($850/mo mortgage collected by a management company with the remainder going directly to him - his mortgage is $737).  Not interested in a Subject To.  He just wants his name off the property and doesn't care how it happens.  He wants ME to call the bank and offer them $60k or so.  Nice idea, but I seriously doubt they will be able to control the laughter.  Anyway, he's sending me his loan paperwork showing how much he has due and left to pay off.  I'm going to keep following, and talk to a Sheriff friend about options to get the squatters out and perhaps find out who they have been paying rent... if they have been paying at all.  Free education!  

:-)