Pre foreclosure confusion

10 Replies

I have a son of a friend who has come to me with a pre-forclosure. He's 4 months behind on a 1st and 2nd mortgage.
Looking at the numbers, it does not seem to be a good property to flip to an investor. But I would like to give him other options, if there are any.

I noticed in another post, someone warned of the taxes that might come with a seller getting money back when they sell to escape a forclosure. My next question here is... Why do I see adverstisements claiming to give a seller money to start over when they escape a foreclosure. How does that work?

Here are my subjects details...
Comps give me an ARV of $203,000. (an above average condition could bump up ARV to $230,000.)
1st mort= $165,000
2nd mort= $35,000
Its a SF home. 1800 sf 3 bdr , 2.5 bathr

What options does he have besides catching up the payments or going into foreclosure?
Any input would be helpful.

Thanks,
Mark (a noobie over his head) :beer:

Don't push the comps ARV is 203k. Owes 200K plus legal fees on the mortgages.
First find out if there any additional liens on the property.
Second if you think its something you want to buy have him contact the lenders to give permission to you to talk to them.
Third come up with an offer amount that works for you.
Fourth let the lien holders work out who gets how much.
Fifth you or I are not lawyers and he may get a 1099 in the year that the property sells to show the balance between what is owed and the sale price.
Sixth You or I are not CPAs if he gets a 1099 you cannot bankrupt out of federal taxes.

Advertisements to give money to a seller for reporting the sale of their home at less than the disclosed price are not legal and any action to pay a seller more for a property that is not recorded on the HUD-1 is mortgage fraud.

Originally posted by "paesproperty":
My next question here is... Why do I see adverstisements claiming to give a seller money to start over when they escape a foreclosure. How does that work?

This works whe sellers have equity when they sell their houses. We can work with them when we sell the house to make sure they get some money to start over. If there isn't equity, we can do a short sale, and give the seller some money that way as well.

Many posts on here deal with short sales, wholesaling and birddogging, if you are interested. As a suggestion, I would try and find someone who was skilled in short sales to help with your friend's son.

Hope this helps.

In a short sale situation, the lender will not allow the homeowner to walk away with any money from closing. In a short sale you are negotiating directly with the lender to discount the amount owed on the note. They therefore are not open to the idea of the homeowner walking away with money. The lender may also 1099 the seller with the difference between what the lender received from the short sale and what the amount owed was.

As Artecte stated, foreclosure ads that advertize start over money are in reference to when the seller has equity, and you are paying off the entire balance owed to the lender plus some. This, however, is not a legal option when it is a short sale situation.

You may want to contact a real estate auctioneer. The seller has the tendency to get more money than a wholesaler would pay them. The conditions of the sale are outlined prior to and it can all be done in 30 days. The lender usually cooperates in this instance too since they get more than the court house steps. You will most likely have to pay a small advertising fee to get the process started.

Originally posted by "paesproperty":
I have a son of a friend who has come to me with a pre-forclosure. He's 4 months behind on a 1st and 2nd mortgage.
Looking at the numbers, it does not seem to be a good property to flip to an investor. But I would like to give him other options, if there are any.

I noticed in another post, someone warned of the taxes that might come with a seller getting money back when they sell to escape a forclosure. My next question here is... Why do I see adverstisements claiming to give a seller money to start over when they escape a foreclosure. How does that work?

Here are my subjects details...
Comps give me an ARV of $203,000. (an above average condition could bump up ARV to $230,000.)
1st mort= $165,000
2nd mort= $35,000
Its a SF home. 1800 sf 3 bdr , 2.5 bathr

What options does he have besides catching up the payments or going into foreclosure?
Any input would be helpful.

Thanks,
Mark (a noobie over his head) :beer:

Originally posted by "Ryan Webber":
In a short sale situation, the lender will not allow the homeowner to walk away with any money from closing. In a short sale you are negotiating directly with the lender to discount the amount owed on the note. They therefore are not open to the idea of the homeowner walking away with money. The lender may also 1099 the seller with the difference between what the lender received from the short sale and what the amount owed was.

As Artecte stated, foreclosure ads that advertize start over money are in reference to when the seller has equity, and you are paying off the entire balance owed to the lender plus some. This, however, is not a legal option when it is a short sale situation.

Well as I can see from your post I do not know as much as I should about the laws concerned with buying and selling real estate. So is there any thing that you could suggest to help me catch up with the rest of the crowd? Any books or courses? Thanks!

I don't really have any recommendations to get you up to speed on all the different factors of different investment strategies. I would recommend that you take some basic real estate classes to learn the laws of your state, but other than that I would surf around on forums like this and go to your local REI club.

The best teacher is still experience. Second to that I would say hanging out with experienced investors.

This was copied directly from RealtyTrac.com. The following shows the foreclosure laws specific to the State of Colorado.
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Colorado foreclosures occur through both in-court and out-of-court proceedings. The most common process is managed by a public trustee out of court and takes about six months.

Pre-foreclosure Period

The public trustee for each county is either appointed by the governor or elected by the public. The out-of-court foreclosure process begins when a lender files the appropriate documents with the public trustee to request a sale of the property. Once the public trustee officially records the foreclosure action, a foreclosure sale can be scheduled.

After the sale is scheduled, the lender still has to obtain a separate court order allowing the sale. The court schedules a hearing to consider the matter, and all affected parties are notified. If no one contests that the borrower is in default, the court allows the sale without a hearing.

If the borrower plans to pay off the default and stop the foreclosure, he or she needs to submit the intention to do this to the public trustee at least 15 days before the sale. If this is done, the borrower can pay off the default and discontinue the foreclosure process up until noon the day before the sale.

Notice of Sale / Auction

The public trustee schedules the sale 45-60 days after the initial foreclosure action was recorded. The notice of sale is published in a local newspaper for five weeks. The public trustee also mails a copy of the notice to the borrower.

The public trustee typically conducts the sale at the courthouse. At the sale, the public trustee reads the written bid submitted by the lender, and any party may bid. If anyone other than the lender is the winning bidder, that person must deliver the bid amount in cash or cashier's check to the public trustee. The winning bidder is given a certificate of purchase.

After the sale, the borrower usually has 75 days to redeem the property by paying the total winning bid plus interest and costs. If the borrower does not redeem, junior lien holders may do so. If no one redeems, the public trustee transfers ownership to the winning bidder.
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Those laws are a different language to me since Texas is very different.

Hope it gives some insight.

-Jim Watkins