SubTo to Save a Foreclosure, Deal or No Deal
I was reached out by this property owner who is going through foreclosure and see if I can make her a deal to take over the property. The ARV for this property is about $200k. The rehab cost is less than $80k. Current past due to the lender is $7.7k. Total payoff is $89k due to the lawyer fee and process fee etc. Thinking about taking it subject to. Monthly payment for the house is $310. Thinking about holding the house for 6 months and fix and flip. Is this a deal? What are some of the ways to make it a deal if not?
Hey Xiaoyu,
I don't think the numbers make sense for a flip (ton of capital to make about $10k... assuming nothing goes wrong with the flip/hold times).
Could you do a lesser rehab (and have a lesser ARV) and increase the profit?
If the payment is $310, is that PI or PITI? Would it be possible to keep it as a rental?
#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Investor
- Austin, TX
If you have the cash for the rehab, do it. That is a very high rehab estimate for a subject to. You are not likely to get lending for that.
I dont see any profit margin for a flip here, especially since $80k is a very high repair cost. Sounds like major improvements that can easily exceed your estimates.
Where did the 80k number come from? That is a lot of money to tie up into a 200k home. Depending on your situation and goals as an investor, you'll be losing out on a lot of other opportunities that the 80k can be put towards on multiple homes.
I am a local RVA agent and investor. Happy to collaborate and bounce ideas off each other
I handled special assets for a bank and our company has handled non-performing loans and foreclosures for many, many years. I've been an expert witness in foreclosure cases and managed hundreds of foreclosures in my career. I can tell you that you won't be able to subject to a property in foreclosure. They don't want to redeem it...they want it paid off. If you sub-to, you're transferring title. There is no way a competent special assets manager or a foreclosure attorney will not call the loan once it's in this state. Basically, you're buying the Titanic and expecting to put your finger in the hole made by the iceberg. They might refi it in your name...at today's rates...but they won't allow a sub-to.
All day long I would do it... and here's my opinion why - (based on california)
I'd have the seller sign a grant deed, the day after an uninsured grant deed doc, then I'd pay the loan to bring it current and get it out of foreclosure. It's 7.7k. at that time the house is still in the sellers name as far as the bank is concened. Take over payments on the house, set up direct deposit to pay the loan each month, lenders haven't usually cared as long as they are getting paid, then create and LLC or a trust (name it whatever the street address is), then open escrow, have escrow handle the 2 transactions, one being the seller to you, the second being you to the LLC. at the end of the day, the property will show as owned in the name of an LLC at the street address. Now even if someone at the bank looks at the transfer doc in 4 months, they are unlikely to do anything as the original borrower may have just transferred to an LLC.... they wouldnt know. Now you rehab the property, try not to spend $80k because thats a lot, rent it, and expect to hold it for a long time... thats how you'll make your money eventually...
You get into a property for $7.7k plus a rehab
Seller avoids foreclosures and their credit repairs while you pay down the mortgage
If by some miraculous reason the lender called the note due, sell the house for $200k and you'll at least break even on those numbers... It's not a flip right now to make profit, this is a longer game rental.
All the above is based on doing it before, more than once, and the last rental we did we sold after 5 years of subject too with a 1st lender issuing the foreclosure and a second lender which was silent and hadn't been paid for 7 years... yes its possible, at least where I am, but we dont have to deal with attorneys either :)
Quote from @Doug Smith:
I handled special assets for a bank and our company has handled non-performing loans and foreclosures for many, many years. I've been an expert witness in foreclosure cases and managed hundreds of foreclosures in my career. I can tell you that you won't be able to subject to a property in foreclosure. They don't want to redeem it...they want it paid off. If you sub-to, you're transferring title. There is no way a competent special assets manager or a foreclosure attorney will not call the loan once it's in this state. Basically, you're buying the Titanic and expecting to put your finger in the hole made by the iceberg. They might refi it in your name...at today's rates...but they won't allow a sub-to.
I made my first million buying houses in foreclosure using Subject To. Most banks don't want to own properties (REO) they've lent money on and my experience is that Loss Mitigation will go away once you bring the loan current or make arrangements. (I'm leaving out a lot of detail & Trade Secrets Here) but, you get the picture.
(as I sit here and giggle over what CAN be done, that normal people assert, can't be done) ;-)
