Lender · South Bend, IN · Member since 2015 · 154 posts · 37 votes
I am working on a pre-foreclosure deal and need advice. The deal looks like this:
Loan outstanding: $244,000 QuickenLoan and it is a FNMA
Other debt: Base on my preliminary title search $0
Equity: $85,000
The owner wants $350,000 based on a recent comp in the area. The property is a home on a block of homes that also has commercial zoning.
What is my next step? How much do I offer? The ARV based on Realtytrac comps are from $184,000-$350,000. I am not located in the same State as where the property is and have not seen the interior. The home is listed with a Realtor but they do not have pictures so I am assuming the worst on a rehab. Any advice?
Offer $250K As Is. Put $5K in the Owner's pocket and find them a nice apartment in a better neighborhood for 90% of their existing mortgage/taxes/insurance costs - they will love you.
Or rent it back to them at $2K/Mo if you can turn at least 5% CAP (after debt service) and $2K/Mo is less than what they were paying in mortgage/tax/insurance (and they have the ability to pay rent). :-)
@Stephen Sokolow What makes you think this is a deal? You list equity at $85k but ARV at anywhere from -$60k to +$100k from the amount owed. From what you posted I would expect this house to be underwater. Also, where are your rehab costs? I would figure $10-$15 per square foot in rehab unless you and a trusted contractor have inspected and know different.
Why are you looking out of town? Are there no good deals in South Bend? If you must invest there either go spend time there or develop a relationship with someone you can trust. Otherwise I suspect you are throwing money away.
@Jeff Kehl I made a typo. ARV is between $160,00-$350,000. On the high side that is for commercial properties (which would make this a development deal) Rehab costs are estimated at this point to be min $45,000.
I am looking out of town because I am looking for higher returns on my time and money. The subject property is in a town I know very well. I spend time there and have relationships in place. I guess my question was geared more towards trying to understand how to make an offer on pre foreclosures. There is no auction date set as of yet. She has retained a lawyer to try and work with the bank up until now has not been cooperative.
My main question is when buying a pre foreclosure am I buying out her mortgage? What do I pay her? Also is the only reason her equity is important is because she owes less on her mortgage? How is that a factor in my calculations?
@Stephen Sokolow ok so just sticking to the buying a pre-foreclosure question. If you're not trying to do a short-sale, I find there are two important numbers to the home-owner. What do they owe and what did they pay? You said they owe $244k (are you sure that wasn't the original note amount?) Do you know what they paid?
Psychologically people hate to sell for much less than what thy paid unless their is a lot of motivation. Sounds like there is here if the foreclosure is close.
When you buy a pre-foreclosure the bank involved has no power other than the balance of their loan. You are exclusively dealing with the property-owner unless the amount you want to pay is less than the amount of outstanding debt.
@Jeff Kehl So based on the title work that I ran on the home they only have 1 one loan outstanding. There are no judgments, code violations or IRS liens attached. They paid $87,000 and through refinancing they now ow $244,000.
As for motivation I am not sensing any for some weird reason. I suspect that since there is not auction date set the owner is not as motivated as I would have thought.