Aunts house in foreclosure, should I buy?
Hey guys. I’m looking for some advice on my Aunts home that is being foreclosed on. I’m new to the real estate world so pardon my ignorance. I have only recently found out about this foreclosure and the auction is coming up quickly (October 24th). From my understanding she has two mortgages on the property. The primary being foreclosed on is around 51k. She took a second mortgage out about 14 years ago and that one is also in default at about 68k. According to my aunt, the second mortgage company said they were willing to settle for far less with a cash payout. Around 15k is what she told me. My question is this, how do I go about determining a total payoff amount and purchase the property before she is foreclosed on? Her home is in a great neighborhood and similar homes sell for around 200-225k in fixed up condition. Unfortunately her house has not been kept up for many years and could easily cost 40k to make it rentable or sellable.
A little background to my financial situation. My original plan was to start investing in real estate after a year or so of saving money and educating myself further. But my aunts current situation is speeding things up a bit. I just pulled out a HELOC on my home for 51k and have an additional 50k in cash. I'd really like for my aunt to walk away with some money rather than be foreclosed and have nothing. I just need to know what the best angle is for me to approach this situation. Any advice is much appreciated!
Originally posted by @Deyson Shaw:Hey guys. I’m looking for some advice on my Aunts home that is being foreclosed on. I’m new to the real estate world so pardon my ignorance. I have only recently found out about this foreclosure and the auction is coming up quickly (October 24th). From my understanding she has two mortgages on the property. The primary being foreclosed on is around 51k. She took a second mortgage out about 14 years ago and that one is also in default at about 68k. According to my aunt, the second mortgage company said they were willing to settle for far less with a cash payout. Around 15k is what she told me. My question is this, how do I go about determining a total payoff amount and purchase the property before she is foreclosed on? Her home is in a great neighborhood and similar homes sell for around 200-225k in fixed up condition. Unfortunately her house has not been kept up for many years and could easily cost 40k to make it rentable or sellable.
A little background to my financial situation. My original plan was to start investing in real estate after a year or so of saving money and educating myself further. But my aunts current situation is speeding things up a bit. I just pulled out a HELOC on my home for 51k and have an additional 50k in cash. I'd really like for my aunt to walk away with some money rather than be foreclosed and have nothing. I just need to know what the best angle is for me to approach this situation. Any advice is much appreciated!
First, you would settle with the 2nd for 15K (In writing) then you would bring the 1st current, you'd then take the loan over "Subject To" and give your aunt equity money.
I would have a contractor walk the property and see what are the costs. I would start to speak to the first and 2nd and see what they will settle for. I would try to squeeze the 2nd as much as possible and since this is your aunt you want to get a release for her. So this the 2nd loan company does not sue her for the difference. I would speak to a real estate attorney to get best guidance. I would not pay the 2nd unless you have an agreement with the first.
@Roni Elias I will be having my contractor walk the property Monday with me. Hopefully there are no surprises aside from the obvious things that need fixed. I will also be setting up an appointment with an attorney as well. I appreciate your input.
@Deyson Shaw
Good luck and have your attorney reach out to the bank as if there is a deal to be made to either postpone sale or say we have xyz date and we want to do deal by then. This way they see you moving forward they might push back sale. Also check to see if all taxes paid or any liens on property.
Definitely get the 2nd mortgage settlement price in writing. Pay that off. Then see if you can possibly make a deal for the 1st mortgage. You never know til you ask. Sometimes they settle for a little less and sometimes not. They would rather get something than have to do a foreclosure sale. Worst case they say no and you pay 51k.
Do have your contractor walk through and check things out so there are no surprises. I can't tell you how many times having an extra set of eyes has saved me.
@Deyson Shaw Settle with tue 1nd mortgagor and call the 1st mortgage amd ask how much to reinstate the loan and due date.
@Deyson Shaw Mike had the best advice: payoff the 2nd mortgage at $15k and bring the 1st current. That gets you out of the danger zone and eliminates the foreclosure threat. Before you spend any money, though, have a very clear understanding with your aunt on what you are both trying to accomplish. Dealing with family in this situation is an advantage but needs to be done right.
What are you trying to do with the house? Do you want to hold it as a rental or flip it? Is the plan to give your aunt some money and then you take over the property (go on title)? I'm assuming that it'll be fair compensation for the equity she has in the home.
(By the way, don't bother asking the 1st for a discount on their payoff. They'll say no since there's enough equity to cover their position.)
@Andy Mirza My plan would definitely be to fix it up and hold as a rental. You are definitely correct when saying that dealing with family needs to be done right. We are supposed to sit down with her realtor and find a number that works for both of us. I want her to be compensated fairly but I'm not looking to pay full market price for something that needs full renovation. Hopefully we can find terms and both walk away winners.
With a 1st that old it is a good loan to take over. Pay arrears, Pay off the second. Help her keep her home. Fix it up and sell for market level. She gets some equity and you share in the upside. you just walked into the easiest flip you could ask for.
or, you can look at doing an FHA refi and they will cash out the 2nd maybe do the writedown. you can do the cosign and or buy out the 2nd.
Can she do a reverse loan, they are much better than years past. Maybe you can cosign.
Can you find a better way or use of the house, can you do an ADU [guest unit] on the property?
@Deyson Shaw If you are planning to hold the property as a rental and this will be a "subject to" transaction where you'll continue to make payments on the loan and transfer title into your name, make sure you have exit strategies in case the loan gets called due. It's rare for that to happen and even more rare that the lender will do something about it, but it does happen. You need to be able to payoff the first or refinance into a new loan, just in case.