Potential Subject 2 Deal ( is this a good deal?)

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Potential Subject 2 Deal ( is this a good deal?)

VAUGHN BLACK
Harrisburg, PA · Member since 2015 · 32 posts · 2 votes

Hi BP! I've been reading and watching investing pod cast on and off over the last couple of years and finally I'm ready to take some action. 

I found a home owner that is currently in the foreclosure process in PA. Her husband passed away just over a year ago and the mortgage had not been paid since just before his passing. She moved out of the home but all of her husbands things were left behind. She has no means of making payments and was advised by her attorney to just let the back take the property. Please let me know if this sounds like a good deal.

Is this a good structure.

- ARV is 137k - Needs $15k in repairs (the home was built in 1975 and had not been updated)

- the home owner owes about $90k after added fees as reflected in a notice she received earlier this week.

- Mortgage - Payments were $560 in the past.

I would like to take the property over using Sub-2 then possibly  update then us as a rental or sell as is to a whole seller. 

I offered her her $5K to part with property

Is this the correct strategy to use? Any suggestions would be appreciated.

Thanks in advance for your time and support!

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Ron S.
Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
7y

Do you think the home would sell for at least $95K in the foreclosure sale? If it would, I wouldn't touch this deal with a ten foot pole.

I'm guessing here but, sounds like an elderly woman that lost her husband and is about to lose her home. I get that she's already moved but she's in distress and possibly under duress. What a horrible situation to be faced with.

I'm not saying that you have any bad intentions but let's say a son or daughter comes out of the woodwork six months down the road and claims you took their inheritance? You didn't, but what if they say you did? They will say you took advantage of a grieving widow for your own personal financial gain. How would you defend that? You did not expose her property to the highest potential buyer's market. You kept it off listing and took the equity in the property for yourself. I'm not saying there is anything wrong with that but is there a chance someone else might?

To avoid that allegation, wouldn't it be better to help that poor woman out by introducing her to a competent agent to list the home and sell it? She would surely net a lot more selling it that she would by signing the property over to you wouldn't she? After all, you are trying to help her aren't you?

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @VAUGHN BLACK this seems like a low margin deal to me.

    0Reply
  • VAUGHN BLACK
    OP
    Harrisburg, PA · Member since 2015 · 32 posts · 2 votes
    7y
    Originally posted by @Caleb Heimsoth:

    @VAUGHN BLACK this seems like a low margin deal to me.

      Thanks for feedback. What would be a good margin?

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y
    Originally posted by @VAUGHN BLACK:
    Originally posted by @Caleb Heimsoth:

    @VAUGHN BLACK this seems like a low margin deal to me.

      Thanks for feedback. What would be a good margin?

    Id probably follow the 70 or 75 percent of ARV minus repairs (minus mortgage = MAO (Max allowable offer) formula.

    So 137k times .75 minus 15000 is 87750, which means the owner is basically underwater.  So I’d say this isn’t a deal, but I’m not an expert. 

    1Reply
  • Ron S.
    Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
    7y

    Do you think the home would sell for at least $95K in the foreclosure sale? If it would, I wouldn't touch this deal with a ten foot pole.

    I'm guessing here but, sounds like an elderly woman that lost her husband and is about to lose her home. I get that she's already moved but she's in distress and possibly under duress. What a horrible situation to be faced with.

    I'm not saying that you have any bad intentions but let's say a son or daughter comes out of the woodwork six months down the road and claims you took their inheritance? You didn't, but what if they say you did? They will say you took advantage of a grieving widow for your own personal financial gain. How would you defend that? You did not expose her property to the highest potential buyer's market. You kept it off listing and took the equity in the property for yourself. I'm not saying there is anything wrong with that but is there a chance someone else might?

    To avoid that allegation, wouldn't it be better to help that poor woman out by introducing her to a competent agent to list the home and sell it? She would surely net a lot more selling it that she would by signing the property over to you wouldn't she? After all, you are trying to help her aren't you?

    2Reply
  • VAUGHN BLACK
    OP
    Harrisburg, PA · Member since 2015 · 32 posts · 2 votes
    7y

    @Ron S. Thanks for your feed back.  Shes not elderly  she in her early 50's and she lost her husband over a year ago. I'm a family therapist so I've been very sensitive about the situation and asked her to  have her adult daughter to join the conversation which she did. I've been  talking to the family about this situation over the last 7-8 months. I've suggested several other options all of which the family  declined like reaching out to family/ friends for support, refinancing  (existing loans interest rate is 2.6% with a payment of $554); cleaning it out and listing it with an agent; short sale. The family seems to just want to wash there hands of the property. I did find out that there are some other issues going on with the home like a crack in the foundation and liens on the home.

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  • Ron S.
    Paradise, CA · Member since 2015 · 1k+ posts · 871 votes
    7y
    Originally posted by @VAUGHN BLACK:

    @Ron S. Thanks for your feed back.  She's not elderly  she in her early 50's and she lost her husband over a year ago. I'm a family therapist so I've been very sensitive about the situation and asked her to  have her adult daughter to join the conversation which she did. I've been  talking to the family about this situation over the last 7-8 months. I've suggested several other options all of which the family  declined like reaching out to family/ friends for support, refinancing  (existing loans interest rate is 2.6% with a payment of $554); cleaning it out and listing it with an agent; short sale. The family seems to just want to wash there hands of the property. I did find out that there are some other issues going on with the home like a crack in the foundation and liens on the home.

    What you described in your first post is not a short sale. If it is in fact a short sale as you state in your second post, your plan to acquire the property won't work, legitimately. Yeah, you can give her $5K walking cash and take the property subject to, but the lender will surely default the note and accelerate with that change in ownership. If you plan on keeping the property, you'll need an exit strategy for the acceleration. You could put the borrower back into foreclosure if you don't play this out right.

     
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