Urgent pre-foreclosure purchase opportunity

4 Replies

I had a call back today from a pre-foreclosure property I door knocked months ago. Property is due for sale this Friday and the owners suddenly want me to buy it. I really need help from the community on this one! The total judgement order is $60,000. The owner gave me a document dated August 17, 2005 stating that the outstanding balance is $43,000. My question is, can I work with the sellers to pay off the $43,000 or is $60,000 going to be definite minimum required amount now? The owners want to stay in the house and pay rent. The max they can afford is $700. The market rent is around $1200. The property is in reasonable condition and no repairs are required. I am willing to rent it for $700, whilst although a low cap rate, appreciation in the area is high. The property is currently worth around $105,000 so it's a worthwhile investment for me to get it below market value.

Nan, Nan, Nan. Of course your prospects want to stay in the house! They'll sign, do or say just about anything to avoid moving.

Of course, they'll give you a cry story as long as your arm why they're victims. 

However, once the pressure is off, and the money has gone hard, they'll be your problem. And then when they fail to perform as promised for you in your partner, you'll be the next bad guy. Are you ok with that? You ok with fighting them in eviction court? Worse?

You'd better have a strong stomach and tolerance for risk and be careful with title research. 

Everybody wants to go to heaven, but no one wants to have to die to get there.

Originally posted by @Rick H. :

Nan, Nan, Nan. Of course your prospects want to stay in the house! They'll sign, do or say just about anything to avoid moving.

Of course, they'll give you a cry story as long as your arm why they're victims. 

However, once the pressure is off, and the money has gone hard, they'll be your problem. And then when they fail to perform as promised for you in your partner, you'll be the next bad guy. Are you ok with that? You ok with fighting them in eviction court? Worse?

You'd better have a strong stomach and tolerance for risk and be careful with title research. 

Everybody wants to go to heaven, but no one wants to have to die to get there.

 Right on the mark as always Rick! If they fail to perform and don't pay rent it would be to my benefit, as I would be able to evict them and rent it out for market rent. I am as hard as nails and can deal with anything. Thanks for your advice.

Originally posted by @Nat Chan :
Originally posted by @Rick Harmon:

However, once the pressure is off, and the money has gone hard, they'll be your problem. And then when they fail to perform as promised for you in your partner, you'll be the next bad guy. Are you ok with that? You ok with fighting them in eviction court? Worse?

 Right on the mark as always Rick! If they fail to perform and don't pay rent it would be to my benefit, as I would be able to evict them and rent it out for market rent.

Unless of course the court rules that you took unconscionable advantage of a destitute homeowner in conjunction with the below-market purchase which by virtue of the below-market rental arrangement was actually a disguised financing transaction that was made without following the proper loan origination guidelines and the former owner has an equitable interest in the property and grounds to reverse the sale (they'll say that that you promised to resell them the property in the future even if you didn't). There have been cases in California with similar results. 

That's why it's always risky, in my opinion, to leave sellers in the property post-sale in transactions such as this. Always cleaner for them to deliver the property vacant, get new tenants and get the sellers out of your life. But of course now you say, "but they won't sell at this price without me letting them stay at the below market rate...".  Thus you see the germination of the "unconscionable advantage" seedling already...

This could work out great, or it could be really bad for you. They say the same thing to test pilots as they climb into the cockpit...

Offer the sellers $6,000 cash for keys if they are out by Friday, otherwise you're not interested.  Then make the money back in increased rents in the first year.  (Not to mention all of the additional rents in subsequent years and leaving the headache behind).

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