Foreclosure in probate

6 Replies

Hey there BP,

I'm actively pursuing a property that is in probate but the bank has begun the foreclosure process as the previous owner passed shortly after not paying her mortgage and taxes for nearly 10 months. My question is, should I wait to see if the bank forecloses then make an offer, or work with the property admin now to come to an agreement. 

The property is about 2.5 acres and has two SFRs on it, both in need of some repairs. The mortgage balance is $45,000 plus about $5,000 for the attorney's fees because of the foreclosure process. The estate admin also mentioned that there are other creditors owed about $20,000 but hasn't given me any other details as to who they are and what the debt is for. He is asking $62,000 and the ARV on the main house is about $100,000. I'm estimating the secondary building to be worth $75,000+ if the parcel could be split and sold as two pieces. I also have the option to do lighter repairs and rent both out if needed. The rent was covering the debt service + expenses but not cash flowing positively.

Any insight would be greatly appreciated. Oh and I forgot to mention that this is my first potential investment property.

Thanks,

Jay

If the value is about $175,000, and you can get it from the estate for $62,000, get a contract signed TODAY.  It will take 30 to 120 days for the sale to close, giving you time to line up a buyer for a flip, or to get hard money financing.  As you have presented it, if the administrator is willing to sell the houses and land for $62,000, the other debts are not your concern.  The estate may have other cash assets, to make up for any shortage from the sale of the property.

Thanks for the input Dave. I'll dig a little deeper tonight when I meet with the admin. If I were to place it under contract, what documents should I have with me? Can I just write an informal agreement on site, or use a "standard" wholesale agreement to protect both parties?

All probate laws are state specific, so consult your closing agent/attorney/Title insurance company as to what they require.

It may be possible to close in a few weeks depending on the CPA's (capacity, powers and authority) of the person(s) in charge.

What us key is that you move quickly if you believe this to be a bargain opportunity.

Here's how I would structure: buy as a 'subject-to' the decedent's mortgage and accept the (limited) risk of the lender calling the loan per due-on-sale clause. This will allow you to expedite the close. Just make sure you get written authorization to release info with decedent's SSN in order to facilitate future correspondence with the mortgage lender or servicer. Get a copy of the original note and current balance, too.

And don't fiddle around.

Thanks Rick. I was considering a Sub 2 as I thought it might be easier to secure the financing I'd need. I'll find out tonight how desperate the admin is to gauge his level of interest in creative deal financing. Who would I need permission from on the decedents info release? The admin, or the bank? Also, do you have any generic sub 2 contracts I could peek at for reference?

Technically, you need the PR admin) to sign your consent to release info form in order to receive info from the lender/servicer. 

You don't need the forms from my probate courses as there's nothing special about a subject-to deal. Write out your intended deal on a single sheet of paper. Remember that you are trying to buy the equity so you can have a wiggle room in the loan balance. Your escrow closing agent will help you with the required docs.

So I met with the admin last night for a tour of the property. Man, the pictures didn't do it any justice. It was a complete DUMP. One of the SFRs has major structural issues, and the other needs about $30k in renovation costs to get it resalable. My best estimate at this point is probably $70-80k in repairs between the two homes, plus $50k to cover the remainder on the mortgage. I'd be in for $130k at a bare minimum before going through the lot subdivision process, permitting, etc. I'm considering trying to wholesale it, but I need some more information on repair estimates and if the lot is capable of being divided.

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