Borrower about to loose house - Creative Financing Ideas Needed

Buying & Selling Real Estate

Borrower about to loose house - Creative Financing Ideas Needed

Investor · Valley Village, CA · Member since 2011 · 30 posts · 5 votes

So I received a call for help on this scenario. Trying to figure out how it could work.

Borrower faces foreclosure sale next week. He needs $19,000 to bring his first position loan current. He is living in the house. He owes about $178k on a 30 year fixed at 3.74% and reports there are no other loans or liens on the property. Approximate value of the home is $800k. Houses in neighborhood in central California where houses are selling for $650k- $1M.

He doesn't want to sell the house. I'm not a registered lender so max I could charge is 10%, so the risks are definitely not worth the reward, but maybe we could do a joint venture or figure out a way for me to get paid? He is willing to payout a considerable amount as he is about to loose $600k in equity. Maybe he gives me a quick claim deed, that I don't file, we do a wrap, and he buys me out in 1 year? Or he employs me to do some consulting work for him, and secures the amount due with the house?

He ultimately wants to keep the house, and not repurchase it because he is grandfathered in with very low property taxes.

Time is of the essence. Ideas?

86 views

Most Popular Reply

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

8y

@Bryan Miller First of all, it's a Quit Claim Deed. Secondly, depending on your state laws (and left coast consumer laws won't help you) the old "hold a QCD to avoid having to foreclose" usually won't stand up in court.....referred to as "circumventing foreclosure laws".

I'm sure your market there is competitive, so the worst he'd probably do at foreclosure is the property sells for $600-$700k and he walks with $400-$500k cash.....probably much better than you'll do for him.

See this reply in the discussion

45 Replies

Jump to latestLatest

Sort by

Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Bryan Miller there you go the Oracle of Truckee has spoken :)... @Sean OToole on the west coast there is no better Authority on this than Sean... hands down... Thanks Sean for commenting.. these threads seem to go wild until we actually get Reined in with the actual laws of the land.. although I like the overage play.. but you always run the risk that the day of the sale there is not spirited competition or worse there is Eh Hum Collusion to bid on the steps.. will be here all December cant wait to see the new bird !!!
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
1st step is to look up recorded docs and ownership on this address and parcel # to make sure it's not a scam.
Verify he is who he says he is and owes what he says he owes and is facing what he says he's facing.
If I were a betting man, my money would be on it being a scam.
0 Reply
Sean OToole
Investor · Truckee, CA · Member since 2013 · 546 posts · 445 votes
8y
Thank you @Jay Hinrichs. And great point... I totally left out the overage play.
Before anyone considers that, please read CA Civil Code 2945.45 which requires you to register with the CA DOJ before taking any action as a foreclosure consultant, which specifically includes collecting overages. I believe there is an exception for attorneys.
See https://leginfo.legislature.ca.gov/faces/codes_dis... for all the details and requirements.
0 Reply
Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
Originally posted by @Jay Hinrichs:

@Bryan Miller there you go the Oracle of Truckee has spoken :)... @Sean OToole on the west coast there is no better Authority on this than Sean... hands down... Thanks Sean for commenting.. these threads seem to go wild until we actually get Reined in with the actual laws of the land.. although I like the overage play.. but you always run the risk that the day of the sale there is not spirited competition or worse there is Eh Hum Collusion to bid on the steps.. will be here all December cant wait to see the new bird !!!
Oh my you aren't suggesting that the bidders could do something nefarious, are you? Hehe. It's not like they don't all know one another.
Gimer Law516 Reviews
Website View Page
0 Reply
Sean OToole
Investor · Truckee, CA · Member since 2013 · 546 posts · 445 votes
8y
@Tom Gimer not much of that still happening in CA afaik. The CA DOJ did a pretty big sweep through the trustee sales, and even some folks who really didn't do anything wrong got caught up in it. Millions and millions in fines, lots of jail time, etc. Collusion is no longer seen by participants as no big deal out here.
1 Reply
Sean OToole
Investor · Truckee, CA · Member since 2013 · 546 posts · 445 votes
8y
I remember guys trying to talk me into it saying the worst that could happen was a $10k fine and a year in jail (state law) - which was pretty dissuasive to me. Now those same guys have served very real jail time and paid 100's of thousands in fines. Seems they never considered they were also breaking federal law. :-(
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Tom Gimer good ole boy wink wink has gone away in Oregon as well... not that the Doj per say did anything just too many players chasing the same deals.
the day I decided to take our 10 million out of the foreclose bizz and turn it into HML was this:
opening bid 80k home worth 170k rehab 30k 32 qualifiers with opening bid checks thats 2.4 million in cashiers checks chasing one deal that ultimately sold with maybe a 10k margin... I though screw that I am going to fire up my mortgage bankers license I will make more loaning it to the same people which is exactly what I did.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Sean OToole I know this is not going to happen but my point with Overages was that this person would do the guy losing the house a solid
explain if he just lets it go to the sale he will be entitle to overages.. and take a thank you for his efforts.. LOL
I suspect if someone explained to this guy losing the home that any over bid was his and it will probably bid up to 600k or so.. that could change his thinking getting a nice check for 400k with no strings.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @Bryan Miller:

@brett
@Brett Goldsmith Borrower is 45 years old. Was counting on a lump sum payment to catch him up, but it hasn't materialized for him.
He was ignoring the situation, hoping for a business deal to develop and then get caught up. He is focused now on creating more cashflow. I totally understand your point.
@Robert Burgess Good points. Thanks for sharing what sounds like hard earned wisdom.
@Chris Mason - Interesting. The problem with anything above 10% is that it may look usurious, if I have to foreclose.

I am considering lending in second position, but requiring a quick claim deed to the property, as insurance, and if borrower fails to perform on the first or my 2nd position note, then file the deed and take the house. Much cleaner than foreclosure. Thoughts?
I don't know if anyone has brought this up yet or not, but if he quit claims this property to you, YOU are the new owner, not him. I don't know anyone in their right mind who would sign over a quit claim to their property for $19K, when they have hundreds of thousands of dollars in equity. Just not smart.
IF he is dumb enough to sign over his ownership of the property via quit claim deed, this doesn't put either one of you in the clear actually. My guess is that the lender has terms for a non-assumable loan. So, if they learn that a new owner has title, they can call the whole note due anyway because the new owner was not processed through an appropriate assumption of the loan.
This is why wraps fizzled as an option. Lenders were getting wise to people doing this, and calling them due. Now the loan language is pretty strong stating that no assignment or assumption of the loan may occur without permission from the lien holder.
You taking on a 2nd lien holder position this close to trustee sale just means that when the 1st forecloses, your lien falls off, so you just discovered the quickest way to lose $19K.
0 Reply
Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
@Cara Lonsdale If there is truly that much equity, the 2nd would be paid easily from the surplus.
But the problem is nobody in their right mind is going to quitclaim an $800k property in exchange for a $20k loan. That has lawsuit/worse written all over it.
Note that OP didn't say he was going to record the deed.
Gimer Law516 Reviews
Website View Page
0 Reply
Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @Tom Gimer:

@Cara Lonsdale If there is truly that much equity, the 2nd would be paid easily from the surplus.
But the problem is nobody in their right mind is going to quitclaim an $800k property in exchange for a $20k loan. That has lawsuit/worse written all over it.
Agreed! I know I wouldn't. That just sounds crazy.
0 Reply
Bryan Miller
OP
Investor · Valley Village, CA · Member since 2011 · 30 posts · 5 votes
8y
@Sean OToole - Great insights. I heard you speak at Robert Hall & Associates last year and it was impressive. Nice to have your factual expertise.
@Jay Hinrichs - Always entertaining and enlightening. Very interesting summary of troubled borrowers continuing to be trouble borrowers, even after a fresh start. I guess that's why approximately 75% of loan modifications fail within 2 years.
@Steve Vaughan I have spoken directly with the bank and they are just want the borrower to pay the outstanding balance and continue making payments.
@Jon Holdman - Thanks. Your reply reminds me of an Oprah quote. "When someone shows you who they are, believe them the first time" Jay's experience of 90% failure confirms this theory.
@Cara Lonsdale The Quit Claim Deed idea was an "insurance policy" if the borrower didn't perform. Creative idea, but as pointed out in this thread there are many issues with this approach. As long as there is substantial equity and overages at the end of the sale, wouldn't a second position lender also be made whole if the asset is taken back and sold?
@Jacob Rhein Creative idea.. I don't think there would be time in this scenario, but it's a good idea on how raise small amounts of capital, especially since HML doesn't seem to be a solution.
The borrowers father built the house, so there is an emotional attachment. He is an only child and his parents have both died in the last 5 years. Borrower offered to pay me 30% ROI, but the issue is, it's illegal, because it's usury, so if I would have to foreclose, an attorney could protect the borrower, and I'd be the bad guy.
Seems like a straight loan is the safest solution. However, at the end of the day there isn't much upside at 10% interest on a $20K loan and plenty of downside risk. Thanks to all for a fascinating and educational thread!
@Joshua D. - You've built an incredible community!
0 Reply
Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by :

@Cara Lonsdale The Quit Claim Deed idea was an "insurance policy" if the borrower didn't perform. Creative idea, but as pointed out in this thread there are many issues with this approach. As long as there is substantial equity and overages at the end of the sale, wouldn't a second position lender also be made whole if the asset is taken back and sold?
In theory, yes. My only fear for doing something like that is the timing for recording prior to the trustee sale. If they don't know about your lien, I don't know that it would make the cut. However, as mentioned, there is plenty of equity to go around.
0 Reply
Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
Cara Lonsdale His loan would prevent this sale. He would be noticed for the next foreclosure sale.
Gimer Law516 Reviews
Website View Page
0 Reply
Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Originally posted by @Tom Gimer:

Cara Lonsdale His loan would prevent this sale.
He would be noticed for the next foreclosure sale.
Like I said.....ONLY if he gets there in time. As some people have mentioned, there may be a window of redemption that closes if he is within 5 days of sale. Here in AZ that wouldn't be the case, but I see others mentioning it, so just had to throw that out there since this is a CA deal. I don't know the redemption rules for CA, do you Tom?
0 Reply
Jacob Rhein
Lawyer/Investor · Atlanta, GA · Member since 2017 · 33 posts · 34 votes
8y
If you are limited at a 10% interest rate, he could pledge something as security to reduce your downside risk. What else does he have equity in? For instance, if he has $19k equity in a car, you could give him a reasonable interest rate with the car as collateral. Not sure what is legal in your jurisdiction, but you could consider using all kinds of things as collateral: life insurance policies, future paychecks, artwork, etc.

0 Reply
Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
Originally posted by @Cara Lonsdale:

Originally posted by @Tom Gimer:
Cara Lonsdale His loan would prevent this sale.
He would be noticed for the next foreclosure sale.
Like I said.....ONLY if he gets there in time. As some people have mentioned, there may be a window of redemption that closes if he is within 5 days of sale. Here in AZ that wouldn't be the case, but I see others mentioning it, so just had to throw that out there since this is a CA deal. I don't know the redemption rules for CA, do you Tom?
It sounds like under the law at this point there is no right to cure the default... but apparently lenders will still work with the borrower to try to avoid the sale. In this case OP says the lender just wants what is currently owed -- not the fully accelerated amount.
Gimer Law516 Reviews
Website View Page
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Tom Gimer in CA its lenders discretion they can choose to let you cure 5 minutes before the sale or at day 5 they can say sorry cut me a check for the full amount..
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Eric Loya
Encinitas, CA · Member since 2017 · 59 posts · 46 votes
8y
@Bryan Miller With a foreclosure date so close, it's going to be tough NOT to lose the property. Even with a cash investor coming in to save the day (since that's who will probably buy it at auction anyways) the processing time with escrow and title, along with the fees owed may take longer to calculate than the timeframe until the scheduled sale date.
The best bet right now is to postpone the foreclosure date by filing for bankruptcy or listing the property for sale and notifying the lender. This will buy him a bit more time. However, given his credit and recent delayed payment history, a traditional refinance is out of the question. He has to come to terms that his best bet is to sell.
By doing this, he will capture the most equity and can go buy a home for half the price all cash with money left over to repair his credit, etc. If he lets it go to foreclosure, he will recoup less, as he must take into account foreclosure fees.
I work the California market and have many resources available. Message me know if you need a realtor connection/ bankruptcy attorney that specialize with this type of work.
1 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.

Log In Join for Free