I have a lot of late and no payers.

20 Replies

I have 3 houses with the buyers 2 payments behind.

two more houses where the buyers are a payment behind.
One of my buyers are going to sign their house back to me that's 7 hours away. ( no true equity an interest rate on this one is
9% to the underlining lender.)

My wife is stressing and doesn't want anymore houses.

I wouldn't stop doing REI because of this, you have to put something in place to ensure payments are made on time, I would accept no late payments without an interest penalty that way u won't get messed with, if ur soft they will pay u last on the list. That's just what I wud do and I've heard so many investors say this is how they protect their assets and reman in control. So they don't pay u to take the stress of themselves meanwhile u and ur wife are stressed. No fair.
Hope it all gets sorted, u can turn it around for sure, just by setting something in place like a system dealing with late payers and they will know they're limits.

I know that @Brandon Turner I believe has a blog about screening and finding good tenants. He may be a good resource here. 

I don't have rentals but if I did I'd likely offer them an incentive to move out- some money or what have ya just to get them out and get some good tenants in. Cut my losses. 

These are houses I have sold with owner carry or on lease options. They are not straight rentals. 

Originally posted by @Joel S. :

These are houses I have sold with owner carry or on lease options. They are not straight rentals. 

 I have actually heard some people who go this route that pretty much count on the new owners defaulting at a somewhat high rate.  They like being the bank because they get a whole lot of interest income and some steady payments for a while.  Then they get the house back and they get to do it all over again.  They get to keep earnest/deposit money too.

I get that you're frustrated because you want to just sit back and collect payments every month rather than having to take the house back and sell it again.  But it's not the worst business model in the world.  If you don't want to deal with these houses, you should probably sell them outright rather than carrying the notes.

Just my .02

Sorry to hear that! My experience as a Property Manager has shown me that if you give timetables, stay firm on them. Have consequences that are fair for both of you but uncomfortable for them. As a multifamily Property Manager I would build a percentage of late fees into our budget - and that even helped with income! Most people will steer clear of being late if they know it will hurt them financially and that you mean business. In rentals here, 10% of the payment due was common. I'm not sure what you can do now, but hopefully that can help you with the next deal. Prequalify your people also - credit, rental, criminal background - anything you can legally get helps to see how they will treat you. Good luck and God bless!! Don't give up :)

Originally posted by @Joel S. :

These are houses I have sold with owner carry or on lease options. They are not straight rentals. 

Or simplest exit strategy for the lease/options would be to get them to agree to terminate the lease and leave.  Would they be willing to do so in exchange for a refund of the option fee minus the back rent and any damages?  Can you pay that?

In the future you want to look for good renters who need to improve their credit a little.  You won't be able to charge a premium on rent, but they should be able to perform on the option.

The owner carry is more difficult situation because foreclosure is the only way to force them out.  I think you really have to evaluate if they have the ability to pay.  If they can't you need to get them to leave.  With the no equity 9% deal, you might see if you can pass the keys on to the original lender.

For deals where you have equity short-sales might be an option.  If there is some ability to pay, maybe a loan modification is the best strategy.

sounds like the OP is an enabler.  I've never been a landlord though I plan to be sometime soon, I will make it very clear from day 1 that I will be sticking to the terms in the lease and I will drop the hammer immediately.  I don't think it's a coincidence that there are 3 people stiffing this owner.  They don't have to like you, but they better respect you. 

Sounds like the buyers have little to lose.  What kind of down payment did you collect?  A foreclosure is much harder than an eviction.  

@Joel S. @Lee S. @Joe Fairless

  you have set these up in a most precarious manner... and I know gurus and others talk about doing these deals this way.

you buy owner finance or sub too... then you resell owner carry on a wrap.. and the thought is you make the delta between the underlying mortgage that you have and the new buyer..

But these are really just sub prime deals that are destine to default.. it would be one thing if you owned them free and clear ... but you don't so what's happening is your obligated to pay on the first lender .. while your wrap payee is defaulting.. thereby putting you in a very negative cash flow situation.. and on top of that you have to pay the 2k or so to foreclose to get the asset back and will probably have a damaged house.

while this sounds great on paper.. the defaults are constant and at the end of the day many lose a lot of money and the people you bought from the original owners either sub too or owner carry are really at jeopardy.. as you will soon find this very costly... And or you have no further ability to do the foreclosure make the payment's etc.

I have picked up the pieces of this scenario more than once.. bought 30 homes from one company that thought this model was good.. and they got in all sorts of trouble because the people they originally bought the houses from sub too were also defaulting and getting their credit trashed from being talked into this deal in the first place.

Not a good model.. if these are NO money down rent to own buyers those people are terrible le credit risk over time.

And no wonder your wife is freaking out  she is right.

Hi Joel,

Sorry to hear about your plight. A couple of things that you can include in your contract is a discount of a few dollars if they pay early as well as a late fee! This will usually motivate someone to pay early / on time! If they are late, make sure that you have a clause indicating that you have the option to terminate the contract if they are late a second time...and stick to what you say! You'll be able to keep the "ernest money deposit" and find another buyer with more "ernest money deposit" to do a new option-to-buy / rent-to-own contract. Stay on focus. It will get better. Make sure you find the "right" people to do your deals with, okay!

Thanks for the input thus far. 

Here is an answer a couple of the statements and questions.

The properties are in Arkansas, Mississippi, and Texas.

The property that I just got signed back to me is in Burkburnett,Texas. It is 7 hours away at 9% not much real equity. The buyers put down 5k down and didn't pay for the past 2 months.

Another house is in San Antonio, Texas 9 k down on a wrap. 3 Payments behind. I'm thinking this one will get back on trace because they did a lot of up dates to the house. 

Another house is in San Antonio, Texas . two months behind and just now started foreclosure. The law firm said I had to wait 2 months before I started the foreclosure because it not a rental . I need to send demand letters sooner. The buyer is showing signs in staying in the property till the very end. :(

The house in Arkansas just caught up 2 days ago. they put down 4k on a lease option.

Property in Mississippi is only one payment behind now( they say they will end this month's payment this week).this one is a lease option. 3k down. long distance from where I live. been in house for 4 years. High-in house I'm breaking even on this one. To force them out would be a risky move on my part due to the distance and not everyone could afford this house. 

To the kind folks that said what they would do, but never did their first deal.....thanks for meaning well.     

Sounds like you have $21,000 in your pocket. You need to be on top of the buyers but I wouldn't be freaking out.

My concern would be if the people over bought or are they scammers.

Maybe consider reevaluating your underwriting criteria for owner financing? Were these buyers originally borderline in terms of DTI or are all of these late payments the result of one-off occurrences like job loss?

It seems to me that folks pay better on a lease option and you can get them out faster if they stop paying. 

I'm not sure how much screening I'm suppose to do, if the buyers had A1 credit they could get a house else where with a bank loan.

Since you already sold them, you are stuck with the contract and its limitations. If they want to walk and give you a deed in lieu of foreclosure, take that as a blessing. That can save thousands. If you sell it again, make sure you get enough down payment that the buyer has an incentive to pay. I would not let more time lapse. Get your money, or get them out! Cash for keys (a very nominal amount) might not be a bad idea and much cheaper than going through the courts. You have let too much time pass and done nothing. Get moving on it today!

Originally posted by @Joel S. :

I have 3 houses with the buyers 2 payments behind.

two more houses where the buyers are a payment behind.
One of my buyers are going to sign their house back to me that's 7 hours away. ( no true equity an interest rate on this one is
9% to the underlining lender.)

My wife is stressing and doesn't want anymore houses.

 Sniff, sniff, sniff... Yup, this whole business model stinks of lease and sandwhich lease options. Horrible way to do real estate in my opinion. My former partner, before I turned him into a millionaire doing real estates the right way, got caught up in this mess of an idea. He lost a few houses to foreclosure and both he and his wife ended up filing BK. 

Get in, rip equity, get out. Keep the good ones (think favorable financing) as rentals. When I sell, it is to a person who takes all the risk borrowing from a lender. I get my cash and leave the scene. Don't call me when the A/C goes out or you lose your job. That house and risky bank loan are your problem now.

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