Assuming a mortgage

7 Replies

Hi BP,

I could use some advice. I talked to a seller who is upside down in his property and now 2 months behind on mortgage payments (about $1500). He just wants out to save his credit. 

The mortgage company is offering to move the missed payments to the end of the term if he sends them $200. They don't want to foreclose. He can't do that at this point because of the divorce he is going through, he can't afford the property and doesn't want to landlord. 

The property is in great shape: roof is 10 years old in excellent shape, updated electrical, new HVAC etc. It just needs a few cosmetic fixes but is basically rent ready once he clears everything out. It would make a great rental but not with the current payment. The loan can be assumed. 

How do I go about negotiating with the finance company for me to assume the loan and have them refinance it so the payment will make sense to take it on as a rental and provide positive cashflow? Can I just call them or have the seller call them and have them call me? Does there need to be some kind of paperwork in place? Any help is appreciated.  

The owner can sign an Authorization To Release information on his loan, letting the lender talk to you.  If you google you should be able to find one.  What rate does he currently have, that you think you can get reduced?  Assumption is usually not an option, but depending on the investor on the loan, maybe.

@Wayne Brooks

Thanks. I will look for that online. He got the mortgage around '04 so I'm thinking he has a little higher rate. He's not an investor, just the homeowner in a bad situation. I'm not concerned about the rate but the total payment. At $750 PITI there's not much room to play with to make it a rental. He owes about $93k on the $120k mortgage, which (the $93k) is right at or slightly more than the property is worth today. A good rehab might push the value to $105k so that's not worth doing. I know refinancing the $93k should bring the PITI to about $600/mo and as is it should rent in the upper 900 range and give me $75 to $100 monthly cashflow (please let me know if I'm off somewhere and those numbers don't make sense). I know assumptions are a rare case but the HO says it can be assumed. I have not looked over his actual mortgage contract yet (I just talked to him yesterday for the first time and this is my first possible solution), but it will be easy to verify whether it can or cannot be assumed.

First off, I'd be pretty shocked if the loan can be assumed.  Who holds the mortgage?  I dont know why you'd be chasing houses at above value to hold for a rental if your name is gonna be on the mortgage, even if you're assuming it.  Its just too easy to find one at a discount and buy it.  Possible its held at a small bank and the decision maker is the bank committee, but the vast majority of mortgages are packaged up and shipped to Freddie/Fannie or Wall St.

The play on this type of situation is to facilitate the transfer to someone that wants the house and cant qualify for the mortgage and is willing to pay a premium to own something.  @Brian Gibbons is the expert on that stuff, but basically you'd get an agreement from the seller that you'll find a lease purchase buyer that'll catch him up and make the payments if you can keep the option fee.  Then you run some ads and market to find someone that can actually pay the payments and has $5k or so down.  Lots of people out there that have money that cant qualify for a mortgage right now.  Present that to the seller, do up a lease and an option for $93k, and walk with $4500 or so (the $5k less the money mentioned to move the pays).

You can take it sub2 and do it yourself, but with zero spread I'd just put the two together and walk away. 

@Darrell Shepherd

Thanks for the input! The LO is actually my plan B. I don't want to just walk in that situation because I want to protect both my seller and buyer so it would be a sandwich LO. I figured if I was going to do all that I might just assume the mortgage and keep the property as a rental. The price is kind of inconsequential because the renter would be paying for it, not me.  They would be paying down the mortgage, the property should appreciate nicely (hopefully back to the 120 range) and then I'll have a good amount of equity to leverage or cash out, and I've helped the seller.  That's my thinking anyway. Does that make sense?

Oh, the mortgage is held by a mortgage company called osweco? Or something like that. I haven't had a chance to research them yet. 

@Edward Prochilo I don't know how hard it is to find deals where you are but consider this. You're paying retail for this house. 

The mortgage is 93k and you want to assume this debt. You also said the house is probably only worth 93k or so. You also said this is a deal that barely cash flows AND the interest rate is higher (we are assuming).

In my experience, it's not hard to find a retail deal, they are everywhere specifically because they aren't great deals. To top it all off, this one is going to be more of a hassle than a regular retail purchase. 

So where is the deal? @Darrell Shepherd gave you the best advice I think there is. If there is any deal here it's probably one you set it between the seller and a 3rd party. This isn't a deal you want my friend. 

@Alexander Felice

You are probably right. I just get fixated on trying to help the seller. I also have a bad habit of complicating the simple things. 

Thanks for the help everybody!

BTW, how do I reference somebody in a post so it alerts them that they are mentioned? I've been typing it out.  I haven't figured that part out yet. 

@Edward Prochilo

@Darrell Shepherd

@Alexander Felice

Welcome to BiggerPockets, and no equity deals.

There is very little for me to add on top of what previous posters have written

Here's some rules of thumb

90% of value is where you start when you buy so you to if the property is in perfect shape and great location, why? Because cost to sell are 10% of fair market value, like the car business, don't pay retail

You could get an assignable agreement to buy on subject to or wraparound mortgage and sell your paperwork for 5% or so

Don't be Mother Teresa in  REAL ESTATE INVESTING, 

you must profit or walk away

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