newbie from Atlanta: Needs Exit Strategy on Duped Deal
Member since 2008 · 18 posts · 0 votes
Greetings,
I am a newbie and I wanted to see if anyone had any suggestions on how to get out of the deal I made. My loan is with New Century.
Last year I purchased a house through a supposed "mentor" for 198k with a Section 8 tenant. I get $700 total, and the mortgage difference is $1,100. I need to sell it because I can't afford the mortgage. The 36k I got back I ued to pay the mortgage. No repairs have been done to the 1950's house.
The appraisal was grossly inflated. It shoudl have been for 165k.
The tenant wants her boyfriend to buy it. He can possibly qualify for 95k-100k.
Now the market in the area has mostly foreclosures selling at 85k-95k. Some are for sale @ 145k.
I thought of a lease purchase but @ what price and how much down? At this point I can't afford to pay 98k out right to get rid of it.
Warning: this will be blunt.
I am a newbie and I wanted to see if anyone had any suggestions on how to get out of the deal I made. I am a victim of a sub-prime loan with New Century.
Victim? If you think you were a victim of New Century you will continue to not see the person in the mirror who is the main cause of your problem.
You did not do your homework.
That is the past. By coming here and presenting the deal as it stands you have a very good chance of correcting the fundamental flaw. Getting educated will really help and this is a start.
Forget being a victim. It is a lose-lose mentality.
You might have a legal claim against the "mentor". Even if that is true it could be a dead end. I suggest you spend a bit of time with a lawyer. You might also call the State of GA Attorneys General to get their view.
What does it mean you spent $36K on the mortgage? How did you spend $36K? Details please.
Tangent:
New Century is in bankruptcy. They have had action filed against them in the state of OH such that no foreclosure actions can be taken on any of their loans in the state. Check with your state to see where things stand.
I know little about the company. While discussing a bulk purchase of 29 properties my lawyer told me about the stay in OH. One of the properties in OH has a loan with them so it matters to my transaction.
Are you sure? If so there is a real possibility that there can be a claim made against the appraiser. The state will care and you should contact the folks who license appraisers in GA.
Assuming the appraiser has insurance (likely required as it is in most states) you might be able to recover some money. That could offset the loss you are facing.
Now the market in the area has mostly foreclosures selling at 85k-95k. Some are for sale @ 145k.
I thought of a lease purchase but @ what price and how much down? At this point I can't afford to pay 98k out right to get rid of it.
The property is worth what someone will pay. If you charge a lot more than the area commands it is more likely the buyer will not be able to get a loan. If you do a lease/option deal at an inflated price you likely will find they can not buy later and you get the place back.
This property sounds like a candidate for a short sale. There could also be one or more lawsuits possible. You might find that a correctly organized legal action will result in the lender taking back the property but without a foreclosure on your credit report. You might be legally able to stop making payments until the matter is settled.
You are in deep on this one. Best to spend some time (and maybe some money) with a lawyer. Also check in with the state as there might be criminal actions the state wants to start. If that is the case it could help reduce the need for you to file legal actions and spend a lot on an attorney.
You dug this hole so time to start filling it back up. Be smart this time around. Be less trusting of those who stand to make money before you do. Get competent advice and then get a second or third opinion so you know the advice has some merit. Post to the forum here as others will have advice for you.
John Corey
tessvis,
YOU ARE NOT A VICTIM! The lender is not at fault. The mentor is not at fault. The seller is not at fault. The appraiser is not at fault. YOU ARE AT FAULT.
You blindly entered into an investment without doing YOUR homework and YOU lost. It is that simple. So, don't whine about being a victim.
My advice is to sell the property at a big loss and get out of investing. "Victims" seldom make good entrepreneurs.
Mike
Thank you REI & MikeOH for your blunt feedback. I did not intend to play the victim. I am very clear of my role/responsibility in this situation. I read information on http://ml-implode.com/ that referenced victims of sub prime loans and used this language to convey that I had a mortgage with New Century.
I used the money to pay the mortgage.
Yes, I am sure. The house should have appraised for 165k.
As usual it's very difficult to add anything to what REI and MikeOH have written. So let me just expand for the BENEFIT OF FUTURE READERS and other newbies who think having a "mentor" is the be all and end all to becoming an investor.
Why would you agree to a purchase price of $198K in a neighborhood of $90K to $145K houses? The idea is to buy below market, not above.
Why would you be interested in a place that has an $1100/month NEGATIVE CASH FLOW? Your total cash on hand at closing, divided by $1100 would have given an indication of how long you could have sustained this.
I think the answers to these questions, and the prime cause of your present problem is the GREED that popped up at the mention of CASH BACK AT CLOSING. Did you realize that the cash back was in fact coming from your LOAN PROCEEDS?
Cash back cannot be generated from thin air, despite what George Bush and Congress think.
There are 3 simple things you could have done (and future newbies should always do) to have prevented this:
Due Diligence
Due Diligence
Due Diligence
The only upside of this; (like the upside of the RE and S&L crash of the '80s) is that a lot of us, will make a lot of profit snapping up these deals for twenty five cents on the dollar in the future. Of course all American taxpayers, and their grandchilren will be paying for your (and lots of others) mistakes.
So although all of us on this site claim to be pure capitalists, we will be happy participants in the SOCIALIZATION of the mistakes of people who spend more time researching the purchase of a $20K automobile than a $200K house!
My (tongue in cheek) suggestion; get a new name, SS number and ID, according to most people I see on the chat shows it's the easiest thing to do!
all cash
:shock: I have learned from my mistakes and I am proactive by being here.
It was a part of a "system" to get money to pay the mortgage and invest in hard money deals. Once I saw the direction it was going I refused to go forward with the hard money deal. I just said the mortgage with the 36k I got back.
That money is gone now. With the fall of the sub prime market, the "mentor" is almost out of business and owes me money. He told me he can't buy it back.
I was told the Section 8 and the money from closing will cover the mortgage. Then when I did the hard money deals it would provide the cash flow.
YOU ARE NOT A VICTIM! The lender is not at fault. The mentor is not at fault. The seller is not at fault. The appraiser is not at fault. YOU ARE AT FAULT.
You blindly entered into an investment without doing YOUR homework and YOU lost. It is that simple. So, don't whine about being a victim.
My advice is to sell the property at a big loss and get out of investing. "Victims" seldom make good entrepreneurs.
Mike
I don't really see tessvis whining to much, I don't see him calling himself a victim, I just see him asking for help.
Tessvis never give up. it might take a few years to bounce back but you will be smarter. If you do your homework. What I would do is buy a big for sale sign and start advertising the house. I would put posters at every store, or common intersection were people travel. craigslist. ect. I would call every Realtor in your area offering some type of commission for bringing in a buyer. I would be calling my mortgage lender up telling them the problem you have and you just can't afford it. Most importantly I would talk to a real estate attorney. I don't know the details of your deal but the appraiser/mentor might have committed fraud. Example if the asking price being advertised was $165k but you ask them to bump it up to $198k so you can get $36k back at closing that is fraud. If they are in it together and other might be in your shoes you might have a case. I would contact your mentor or have someone else contact your mentor asking for his serves and try to get a list of other guys he so called helped out. Who knows there might be 10 other guys like you running around. Bottom lie I think your going to eat this one. hang in there. prepare for the worse and hope for the best.
I just met a guy that gave $18k cash to another guy that promised him 12% return. well long story short this highly educated senior electrical engineer is out $18k. with no contract, or collateral he is out of luck. Just remember it's not how high you climb, it's how high you bounce.
Why don't you just lease to purchase with the tenant making up the difference so you can now afford the mortgage payment? I doubt you will get any money down if you do this, but you can guarantee an equity plan for them when the market rebounds in the area.
Are you saying that the rent payment is $700 and the Mortgage is $1100, so your negative cashflow is $400, or are you saying that the mortgage is $1800 and the difference is $1100?
The whole problem at this point is that you can't afford the mortgage payment. Now is not the time to sell/refinance. Remember, buy low and sell high. Time is your factor here. If you can get that kind of rent payment out of them.
What are the laws for section 8 housing? Can you give these tenants notice of a rent increase?
Sounds like you are a victim of the mortgage fraud scheme that i just read about that was going on here in the ATL. Let me take a guess you bought an in town house???
The problem is you got cash out on the closing. You can complain but you may be held liable for that money. I mean im new to all this but who gets 36k at closing and its a legit deal??? Please someoe correct me if I am wrong Thats a lot of money. Get rid of the house and suffer the loss. and learn a very important concept in anything you do:
DUE DILIGENCE!
I got info on a MTA loan (interest only) from Fannie Mae that will refi the property and get my payment down so I can manage it and then do a lease purchase and some repairs. Is this a good move?
Is anyone familiar with this loan? Pros/cons?
REI: I am to talk to a lawyer today.
The mortage is $1823 and I get $700 from section 8.
Tessvis,
Even if you get an interest only loan, by my calculation you will still be losing about $970 per month. Can you afford that much loss? I would call the lender and ask for help. Maybe they'll do a deed in lieu of foreclosure.
This has been a good thread for other new investors. This shows what actually happens when you pay too much for a property. As I've said a million times before, it doesn't matter where you live or what your market is like - THE RENTAL PROPERTY BUSINESS IS ALL ABOUT THE NUMBERS!
Mike
Mikeoh,
I am current on my loan. New century will not take it back. I asked. They sugeseted I get a refi.
How will I have a loss now with a lower monthly payment? The loss will come after 5 years right or when I can sell?
What is your new payment? The interest on $198,000 is about $1,320 per month. Add in the operating expenses and your monthly loss is $970.
Mike
tesswis,
I think we all could learn a lot from you if you could, when you get a chance tell us exactly how this home was presented to you when you decided that it would cash flow. They had to have a really excellent shell game going to convince you that a $700 a month rent payment would cover that mort. or did they play on your greed when they gave you 36K cash back?
I'm very curious how this "deal" got spun as well. Sounds like some court time is definitely in the works, although I wonder if not doing your due diligence leaves you completely liable for your loss.
I appreciate your honesty on your problem, definitely keep us posted on how everything works out.
Court time? For what? I agree that this is an extreme case of not understanding the rental business, but this really is no different than the MILLIONS of newbies that fail because they pay too much for a property and lose a bunch of money. If you don't understand the math, the expenses, and cash flow - you're doomed to fail. It's as simple as that!
Mike
I am philosophically opposed to being litigious in situations like this when the situation you are in is, in my opinion, no one's fault but your own. You were responsible to do sufficient due diligence prior to the deal, and you did not.
However:
You came here asking for help in getting out of this hole you've dug for yourself. If I were to advise you on how to get out and didn't suggest that you talk to a lawyer about potential action against the promoter of this transaction, then I'd be remiss. Talk to a lawyer and lay all of your cards on the table. You and your lawyer will need to come to a decision about whether it is worth taking legal action, given the unscrupulous actions you likely took (knowingly or ignorantly) during the transaction and how that might open you up to additional liability.
This is still no one's fault but your own. But pursuing (common) law that might advantage you is a separate issue.
Thank you to everyone who has responded. I have spoke nto an attorney and I would be liable so he advised me not to pursue any legal actions.
I am a newbie and I wanted to see if anyone had any suggestions on how to get out of the deal I made. My loan is with New Century.
Last year I purchased a house through a supposed "mentor" for 198k with a Section 8 tenant. I get $700 total, and the mortgage difference is $1,100. I need to sell it because I can't afford the mortgage. The 36k I got back I ued to pay the mortgage. No repairs have been done to the 1950's house.
The appraisal was grossly inflated. It shoudl have been for 165k.
The tenant wants her boyfriend to buy it. He can possibly qualify for 95k-100k.
Now the market in the area has mostly foreclosures selling at 85k-95k. Some are for sale @ 145k.
I thought of a lease purchase but @ what price and how much down? At this point I can't afford to pay 98k out right to get rid of it.
Regardless of what happens keep us posted please. Moving forward invest in your self knowledge and if you are going to loose money every month don't do the deal. This is a business, if you dont make money do not do it.
You are not in business to loose money but to make money. Best of luck and think creatively on how you are going to get your self out of this pickle.
YOU ARE NOT A VICTIM! The lender is not at fault. The mentor is not at fault. The seller is not at fault. The appraiser is not at fault. YOU ARE AT FAULT.
You blindly entered into an investment without doing YOUR homework and YOU lost. It is that simple. So, don't whine about being a victim.
My advice is to sell the property at a big loss and get out of investing. "Victims" seldom make good entrepreneurs.
Mike
I don't really see tessvis whining to much, I don't see him calling himself a victim, I just see him asking for help.
Tessvis never give up. it might take a few years to bounce back but you will be smarter. If you do your homework. What I would do is buy a big for sale sign and start advertising the house. I would put posters at every store, or common intersection were people travel. craigslist. ect. I would call every Realtor in your area offering some type of commission for bringing in a buyer. I would be calling my mortgage lender up telling them the problem you have and you just can't afford it. Most importantly I would talk to a real estate attorney. I don't know the details of your deal but the appraiser/mentor might have committed fraud. Example if the asking price being advertised was $165k but you ask them to bump it up to $198k so you can get $36k back at closing that is fraud. If they are in it together and other might be in your shoes you might have a case. I would contact your mentor or have someone else contact your mentor asking for his serves and try to get a list of other guys he so called helped out. Who knows there might be 10 other guys like you running around. Bottom lie I think your going to eat this one. hang in there. prepare for the worse and hope for the best.
I just met a guy that gave $18k cash to another guy that promised him 12% return. well long story short this highly educated senior electrical engineer is out $18k. with no contract, or collateral he is out of luck. Just remember it's not how high you climb, it's how high you bounce.
I had a client that was a member of one of these "systems". I advised him to not put his money there and save his pennies and do his research and go look for deals on his own. He had one of those mentalities that even though he had only been doing RI for a short time, that he knew what he was doing. Unfortunatly it got the best of him and he lost everything. Please be careful out there people. Who ever says this is an easy money business is flat out lying. Do your research, be smart, don't get in over your head.
Greetings,
As promised, I am posting an update.
Please see:
http://forums.biggerpockets.com/viewtopic.php?p=50061
For follow up on this situation.
Greetings,
As promised, I want to follow-up on my progress for new investors.
I have negotiated a short sale for great price and half attempted to sell it. we were in the final stages & buyer is have trouble getting his money from his 401k for the down payment & closing costs.
I have the bank on hold for another extension and I am now looking for a new buyer.
I have posted the deal in the Make Deals, Find Partners, Mentors & BirdDogs, etc. forum.
As this enfolds, I will give an update.
Good, you are working through the problem. Keep us posted.
I am still unclear what your cash flows are. Would help to understand that. Unless you are in a crazy town like Aspen where rents cover about 50% of a 100% interest only mortgage the basics of rental finance apply.
Renters should pay a premium vs financing for the benefit of staying flexible. As simple as that.
Not gonna unnecessarily and dramatically throw flaming knives at you...appears that has already been done by some of the posters thus far. But you do get the point...just do your due diligence better next time.
But one comment you said jumped out at me.......the inlated appraisal part. If you feel the appraisal was performed in a commercially unreasonable manner (and you can really back that up) seek an attorney now.
So you lost money. Welcome to the club brother...lol :beer:
It happens to all of us at some point or another. It's good for you. Nothing gets your head out of your a$$ quicker than writing big checks that you don't want to. Now you have to do very well to recover...and the muscles you develop from running with anchors on your heels will only serve you to perform GREATLY once the anchors are gone. You did better than another friend of mine. He lost 4 million last year. (Made 7 total though so he netted 3 - that's ok...lol).