GOOD DAY BP FAMILY I recently came across a situation that I have never dealt with before and was hoping anyone out there with similar experiences could provide some advise on how to proceed, or NOT. All advise is welcome. Thank you in advance and my apologies if post seems long.
Currently found a property (SFH 2/2, 1,468 Sq ft. Lot. Sq ft 5,399, built 1949) that was vacant for some time. Turns out the property is currently in foreclosure and has already been identified to go to auction 03Nov16. This particular property actually has two APN's. First APN is where the foreclosed home sits on, and second APN is mostly back yard and detached garage behind house. Owner of house passed away last year and the reverse mortgage is defaulted and equity is in the red -$7,477. The back half of the property (second APN) is owned free and clear by original owner's son (current executor).
The owner of the second APN is looking at selling his part of the property, now that the front property is under foreclosure, in order to recoup some money prior to the auction. He was hoping the bank would have paid his asking price for the second APN, but unfortunately did not entertain his offer of $60K. He is very motivated to sell his portion of the property and is willing to come down in price and sell for $15K. Mind you, the main house and first APN is still in foreclosure and scheduled for auction. I keep going back and forth on whether this might be an opportunity in disguise or an obvious nightmare. Apparently there is an easement on the driveway, as this is the only way to the back garage.
Exit strategy for this property would be to Fix-Flip, recent sold comps have been between 150K-175K. The front house is very outdated and would require about 40-50K rehab so acquiring at auction as low as possible would be key. My concern is that if I purchase the back property for 15K, and I'm unable to acquire the main house at auction, would I be locked in a legal battle since I would now own the back APN or maybe forced to sell the back property for less than I paid for it? Does anyone see an opportunity and or a worthwhile investment in the second APN? What type of strategy might I be able to employ? I currently see issues once the house is sold at auction and the new owner finds out about the second APN is not part of the house. I have even considered following and perhaps even making an attempt to bid on the property (first APN) at auction. Many questions and concerns, any and all advise is appreciated. THANK YOU!
You don't want the rear parcel, without owning the front....it will not give you any leverage over the owner of the front. Important also, has title actually passed to the son for the back parcel, or he is just the apparent heir, and executor/PR at this point?
1. If he is the executor can't he sell both the house to you and the land without going through the foreclosure process?
2. If you enter into a contract to buy the land for $15k but wait until after the foreclosure sale to close, couldn't you purchase the land from the son "subject to" your winning the bid at the auction? In other words, if someone out bids you at the foreclosure sale then you would not be obligated to buy the land. But if you do win the bid at the foreclosure auction, then the son would be obligated to sell the land at the predetermined price of $15k.
3. Is the 1st upside down or just past due? Would it make sense enter into an agreement with the son that allows you to buy his land and to take legal equitable title to the fathers house, bring the loan current, then fix and flip the house and land....paying the son his $7 to $15k after you completed and closed on the flip. The son's $7k-$15k is coming from the end buyer at the final closing of course.
I doubt he will be able to sell the back lot to anyone other than the person who buys the house. So you could just wait and try to get the house, and then buy from him. Unless you think he will cause problems/ be hostile later on. Then you can buy now and hope to get the house/ sell to new owner for at least the same amount.
Thanks for your feedback Wayne, the son does in fact have the title to the back parcel, this was transferred to him some years before his mother passed away. My thought process in obtaining the back parcel was to put myself in a position, although not a guarantee, to acquire the front house at auction, then pay the son his 15K for his property yielding me the owner of both APNs. Worse case scenario if I can't obtain the house at auction is I would sell to the back property to new owner, hoping to make my money back and chalk it up as an experience and lesson learned.
1. Good question, this is what he is currently in the process of finding out. He has been in communication with the bank so they can verify if in fact he is executor, pending verification of Will and associated documents.
2. This seems like a good strategy, Is this something you have done before in the past? or heard of this type of strategy being used for an auction property? I talked to the owner this morning and he reassured me that even if I don't win the Bid for the front house, and I don't purchase his back property, he would allow me to search and secure a buyer, on his behalf, for the back property (most likely the new owner) and negotiate a selling price, in which he would compensate me a percentage of the sale for my efforts. He currently lives 8 hours away and does not have the time to search in my area for a buyer. He's also in talks with the bank to see if a short sale might be another option at this point.
3. The mother had a reverse mortgage on the property prior to her death, and there is an existing loan for 189K. Local sold comps are at 150-175K. I'm following you on paying the son his 15K on the back end of the flip. Existing loan balance is 189K and equity is -$7,477. Paying off the loan would not be worth it as comps can't support 185K, and that's without the rehab cost.
Thank you all for your feedback, looking forward to your reply.
Maybe try offering him $500 for a 6 month option on the back property at $15k? Then go buy the front at auction. If you get it exercise your option. If not sell your option to whoever buys it for $5K.
Thanks for your advice. This is what I'm leaning towards. If I'm able to Aquire the front property then I'll be in a good position to negotiate the back part. As you stated, worse case I sell the back property to future owner of front house. Thanks for taking your time to reply.
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