I have a friend in pre-foreclosure, what are her options

Foreclosures
11yFollow

I have a friend in pre-foreclosure, what are her options

Christopher Davis
Investor · Litchfield Park, AZ · Member since 2015 · 28 posts · 15 votes

We have a close friend who has received notice of trustee sale.  They are under a bit of stress as one might imagine so the information I have right now is incomplete but it should still be enough to start exploring their options.  

- Litchfield Park, suburb of Phoenix, AZ

- The sale is due to take place in September

- Home value guestimate ~$170k

- No equity, they are a little under-water and owe 180-190

- They are currently paying on another plot of land and trying to get a house finished after it being botched by an unlicensed contractor.  So they want to maximize the time they can spend in the current house. 

- Conventional loan is with Washington Federal

I happened to have just heard podcast #19 which featured @Tracy Royce talking about this very issue.  I am not really looking to work this as a deal, I would like to be able to get them in touch with a person who knows the Phoenix, AZ market who can best explain the best options for their situation.  I will consider this a learning experience and perhaps an experience BP member can earn some money. 

I'm a bit puzzled regarding the math of having a conventional mortgage and being upside down by 10-20k, but she admits to not understanding the process well and might just be a little confused on the terminology.  Once I can go back to her with more information or someone to talk to, I think she'll be more open to getting her head around the specifics.  

0Reply
14 views

Most Popular Reply

Colin SmithBusiness Member
Realtor · Colorado Springs, CO · Member since 2013 · 987 posts · 447 votes
11y

I think their best option may be a short sale. If the house is underwater, even a sub-to deal wouldn't be good for the buyer so that eliminates that option but at least with the short sale they can stay in the house longer. Or they try to rent out the home in order to keep it afloat and hope they can sell it when the value increases and the mortgage decreases, but that would mean they would have to get out of the house. All around, not a great situation. Sorry I couldn't come up with a better solution.

1Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Colin SmithBusiness Member
    Realtor · Colorado Springs, CO · Member since 2013 · 987 posts · 447 votes
    11y

    I think their best option may be a short sale. If the house is underwater, even a sub-to deal wouldn't be good for the buyer so that eliminates that option but at least with the short sale they can stay in the house longer. Or they try to rent out the home in order to keep it afloat and hope they can sell it when the value increases and the mortgage decreases, but that would mean they would have to get out of the house. All around, not a great situation. Sorry I couldn't come up with a better solution.

    1Reply
  • Esaul Viramontes
    VENICE, FL · Member since 2015 · 113 posts · 36 votes
    11y
    Originally posted by @Colin Smith:

    I think their best option may be a short sale. If the house is underwater, even a sub-to deal wouldn't be good for the buyer so that eliminates that option but at least with the short sale they can stay in the house longer. Or they try to rent out the home in order to keep it afloat and hope they can sell it when the value increases and the mortgage decreases, but that would mean they would have to get out of the house. All around, not a great situation. Sorry I couldn't come up with a better solution.

     I agree with Colin,

    Short Sale is probably the best route as the process is usually pretty long(which will alow them extra time in the property). Every bank is different, HOWEVER, banks will usually be willing to take between 78-85% of a BPO value NOT whats owed(this is why you have mortgage insurance) Short Sales will also appear as missed payments on their credit scores...BUT thats a hell of a lot better than a Foreclosure! Good luck!

    0Reply
  • Christopher Davis
    OP
    Investor · Litchfield Park, AZ · Member since 2015 · 28 posts · 15 votes
    11y

    I appreciate the input, it's pretty much what was expected.  They have a lawyer telling them short sale = foreclosure.  I know this is just wrong but I do not have the expertise to advise them on a short sale, hence this post.  I'd like to refer them to someone who knows the process in this area well.  

    0Reply
  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    11y

    Have these owner missed payments in the past?

    From a lender's perspective, these owners want the lender to take a loss while the owners move to another home ... and make payments on the other home (lot and construction costs).  Why would a lender lose $20 K (or so) while these homeowner can make payments on two properties?

    What is their income and what are the payments on BOTH properties?

    0Reply
  • Christopher Davis
    OP
    Investor · Litchfield Park, AZ · Member since 2015 · 28 posts · 15 votes
    11y
    Originally posted by @Kevin Yeats:

    Have these owner missed payments in the past?

    From a lender's perspective, these owners want the lender to take a loss while the owners move to another home ... and make payments on the other home (lot and construction costs).  Why would a lender lose $20 K (or so) while these homeowner can make payments on two properties?

    What is their income and what are the payments on BOTH properties?

     Check on the lender's perspective.  The husband is the sole earner and owns a landscaping business.  THey can only afford to pay on one or the other.  The timeline of events I will have to find out as well as the specifics on the payment histories.  Renting the current home might be an option.  Rents are around 1100 so I'll have to find out what their payments are.  

    0Reply
  • Alan Grobmeier
    Rental Property Investor · Phoenix, AZ · Member since 2013 · 919 posts · 911 votes
    11y

    Chris

    Rental market is hot in phx right now.  Literally and figuratively.  Depending on the numbers and situation, an investor may want to buy 'subject to' for a long term buy and hold.  Even with it being underwater.  Owner would get credit saved, but would need to be onboard with a long hold time. 

    Alan Grobmeier

    0Reply
  • Christopher Davis
    OP
    Investor · Litchfield Park, AZ · Member since 2015 · 28 posts · 15 votes
    11y
    Originally posted by @Alan Grobmeier:

    Chris

    Rental market is hot in phx right now.  Literally and figuratively.  Depending on the numbers and situation, an investor may want to buy 'subject to' for a long term buy and hold.  Even with it being underwater.  Owner would get credit saved, but would need to be onboard with a long hold time. 

    Alan Grobmeier

     Got it, Alan.  Thanks!  I work evenings to will not  be able to advance the project further until tomorrow morning.  Sincere thanks to everyone who has offered advice and help.  

    0Reply
  • Christopher Davis
    OP
    Investor · Litchfield Park, AZ · Member since 2015 · 28 posts · 15 votes
    11y

    still working through this, their finances are ... jumbled and there is absolutely no organized plan or priorities.  Income might be the least of the problems here.  That probably makes the problem more solvable.

    0Reply
  • Jay Raught
    Investor · Newark, DE · Member since 2015 · 248 posts · 178 votes
    11y

    What about a deed in lieu or something similar? The current note holder could hold the property to rent or sell the property to an investor who holds rentals. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free