Homeowner profit incentive

5 Replies

Hi guys,

New to BP and loving all the content. As someone new to the USA and pre-foreclosures I was wondering if there was anything from a legislative perspective preventing potential investors from offering homeowners in the pre-foreclosure process a % of profits from a flip or wholesale in return for agreeing to hand of the deeds etc.

E.g. Bill is behind on mortgage payments and bank have started the foreclosure process. Investor approaches Bill to try and negotiate a short sale and tells Bill he intends to rehab said property and sell. As an incentive, he offers to give Bill 15% of net gains from rehab in return for handing over the deeds.

Is there anything ethically or legally wrong with this? I ask as the pre-foreclosure market appears to be very competitive and potentially a little saturated?

Thanks in advance

As to short sales, yes. You and the owner wil, sign an affidavit that there are no side deals, and the owner is receiving no money that isn't shown on the HUD.

Thanks Wayne - shame!

@Michael White , don't give up so easily! There are more ways to skin this cat than short sales. I know someone not far from you who uses just that business model. He is quite successful and has been doing it for years

BTW, welcome to the BP family. It looks like you might be just getting started in RE investing. Have you read "The Ultimate Beginner's Guide to Real Estate Investing" by @Brandon Turner . It's a great place to start.

I see you've already found the forums, but have you checked out the podcasts yet? There are 105 podcasts hosted by @Joshua Dorkin and Brandon Turner where they interview other successful investors using every conceivable strategy. It's worth it to listen to every one of them. You can listen to the podcasts in your car while you wading through So Cal traffic, if you need to find the time.

It's quite cool to see another So Cal investor interested in financially distressed property. It would be great to get a cup of coffee and compare notes. 

All the best.

Welcome to BP @Michael White  . Glad you asked this question. I am also a relatively new investor and have been thinking of approaching pre-foreclosures in a similar way. 

You can't offer the owner money back if you do a short sale, but perhaps you negotiate with them to pay to reinstate the loan, and you "partner"(?) with them (since they are still the 'owner' and have all rights as such) in such a way where they agree to give you the right to rehab and/or sale the property and they receive a percentage of the proceeds. Being a partnership, you would sign paperwork to protect your interests, but I thought it would be a better approach and more welcomed than "let me buy your house for what you owe".

From my experience, many times people in foreclosure just don't know how to get out of the situation and/or don't have the money keep up with the bills, let alone to improve the property so that they can sell it. I like to approach situations from a "how can I help" manner and thought that this might work.

Is this sort of what you were thinking?

In some cases banks have offered owners money to leave foreclosures.  I think this may be the simplest way to create the type of deal you are thinking about.  You can explain to the bank that you need the property to be vacant and in good condition for you to be able to pay the offer price.  I would leave it up to the bank and owner to negotiate the amount and terms.  You will have to work out the price with the bank.

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