Help with a preforeclosure opportunity

9 Replies

Investor community - I've been deal hunting for several months now so far have come up empty, several offers in on properties found on the MLS with no luck. I have an opportunity to buy a house from an acquaintance. Here's the background - the couple is divorced and both parties have moved out of the house, it currently sits vacant. Foreclosure proceedings are underway, and before I approached them they were simply waiting for the bank to foreclose on the house. They would very much like for me to buy the property before the foreclosure is finalized. Based on the ARV, there is currently about $160k equity in the house.

My biggest question is...

How do I proceed? The principal amount owed before late fees and interest is approximately $200k, when making my offer do I need to account for the late fees/interest? Or is it common for the bank to approve a sale for the principal amount owed.  They are currently not making any payments, and the foreclosure action was filed in July 2017.  I checked with town hall and all taxes are up to date, and a lien search yielded no other liens or judgments against the property.

This sort of just fell into my lap, and would be my first fix and flip.  I want to make sure I proceed correctly in order to make it happen!  Thanks in advance...

The pay off will have to include all the extra fees......accrued interest, fees, foreclosure costs, any taxes, insurance, preservation fees paid out by the lender, etc. The owners need to get a total pay off, and make your deal from there.

Step 1 would be for the borrowers to call their lender to get a total payoff - which is likely to increase with every day that passes. 

Step 2 would be to check when the foreclosure is actually due to take place - and then if you still have time, make the deal.  If the foreclosure date is right around the corner then you will need to get the borrowers back on with the lender and see if there's even a chance to avoid the foreclosure if they can get a contract in place.  

Also - 160k of equity with only a 200k payoff is a lot of money for anybody to walk away from, so you may want to do a little bit of digging on the title to see if there's something else going on.  Would probably be worth pulling an abstract to see if there are some extra goodies encumbering the title.

Blair Poelman, Broker in Utah (#9299425)

@Blair Poelman @Wayne Brooks your input is much appreciated.  Considering foreclosure action was filed 6 months ago, should I anticipate the total pay off being tremendously higher than the principal amount owed? I'm guessing it will be substantially higher, but again I don't have any experience with this yet.

Originally posted by @Dan Kaen :

@Blair Poelman @Wayne Brooks your input is much appreciated.  Considering foreclosure action was filed 6 months ago, should I anticipate the total pay off being tremendously higher than the principal amount owed? I'm guessing it will be substantially higher, but again I don't have any experience with this yet.

 "Substantially Higher" is relative but, yes, you should anticipate it being several thousand higher at least.

Hi Dan,

The lender will require everything paid at time of closing. I would recommend you and the owner ratify a contract with a number close to what you think will be the payoff plus fees.  The title company will get the actual payoff from the lender and the parties can amend the contract if needed.    I would get it to a title company quickly. Good luck.

Have $160K equity but own $200K in the bank?

Is the house under water or not? 

Originally posted by @Sam Shueh :

Have $160K equity but own $200K in the bank?

Is the house under water or not? 

 I wouldn't think so! Based on the OP's statement, that would imply the value is at least $360M?

@Dan Kaen

We tried this and got approval from an owner that was getting his house taken to buy it, however what we were told within 1-2 months of the foreclosure auction was that the BANK also had to approve our offer.  We had a nearly impossible time trying to get through to the law firm managing the bank's bad assets and the whole proceedings, so we were unable to go this route and had to wait til the auction. 

After talking about this with someone else with a lot more experience than us, we were informed that drawing up a purchase agreement and writing a check ultimately would have probably done the trick for us.  If we had been able to do that, we would have likely saved 20-30k on the purchase price (someone bid us up in the auction)....

However, I think we made the right decision to NOT do that given where we were and comfort level with the process (perceived risk was higher at that point and its worked out well)

To buy directly from someone that's getting foreclosed though... as someone mentioned you do need to consider all the 'usual' stuff that happens in a closing/settlement - including having title examined/possibly insured ---  you can pay for this directly from a title /abstracting company however they usually want it paid in advance.  You will also need to kind of quarterback the deal, getting the parties together and driving it forward.  This is often different than if you work through an agent.  There's no agent to hand hold for you on this one.

I had a pre foreclosure fall in my lap like this.  Get to a title company, fast.  The owners will meet there, bring their paperwork, draw up a sale agreement, and the title company will handle it.  Just like others have described.  The late fees accrue fast, so each day is lost money.  
It was my first flip without a realtor, so that was scary.  However, I used the same title company that I used for my other flips, that was assuring.  It was actually surprisingly easy, and FAST, if you're coming in with cash.  I don't know about financing it.
Good luck!!

Join the Largest Real Estate Investing Community

Basic membership is free, forever.