Need Solution to KEEP someone IN their House + Plus GET CASH to settle obligations

Lender · CA · Member since 2018 · 637 posts · 393 votes

2y

I have worked a number of similar scenarios. I would be more than happy to make myself available for a conversation to get some more details and understand the whole scenario. There are a few different options available.

0 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

2y

Quote from @Michael Morrongiello:

Situation:
Have a family that is going thru a DIVORCE and that owns a $2M+ valued home. Home is located in a VERY HOT Market place.
They only owe about $270,000 on a 1st lien that dates back to 2021 which is at 2.875% Interest and will remain at that FIXED Interest rate for 4 more years. The loan amortizes out over 360 months but is a FIXED / Adjustable rate Note until 1-2029 (THEN it will have interest rate changes every 6 Months thereafter) . SO They have a TON OF EQUITY.

Current Payment P & I payment is $1,200/ Mo

Husband and wife are on TITLE - their Dissolution of marriage calls for the WIFE to pay $550,000 to the husband and then she can KEEP the 100% of the home. Husband is willing to accept the $550K but IF it cannot be paid then a FORCED SALE OF THE HOME MUST HAPPEN.
Time is running out

Wife and 3 Children LIVE in the home and want to CONTINUE to live in the home as the Children are entering or in High School
(a painful time to have to move or relocate for all) - YES lots of emotions all around involved.

Wife does not EARN enough income (working for a non profit group) to be able to afford large loan payments.

She has been trying to BORROW the funds she needs $550K to pay off the Husband and another $300K of additional funds (Totaling $850K) so that she has the EXTRA borrowed funds to be able to make 2-3 years of payments on the financing (versus raiding her retirement account). Given that she is a CONSUMER it may be difficult qualify her ABILITY to REPAY.
Even Hard Money lenders (with 10% to 12% interest rates might have issue with that)

PROPOSAL MADE and SEEKING OTHERS:
Have the Husband agree to SELL her his 50% interest in the House on TERMS to the WIFE who wants to STAY in the home and where he would carry back a WRAP AROUND Note - lets say for $1,425,000 at 7.0% with I/O INTEREST ONLY repayment terms of $8,312.50 monthly and a 36 Month Balloon payment when the entire $1,425,000 would be due. THIS $1,425,000 WRAP AROUND Note would be INCLUSIVE of the existing underlying 1st lien ($270,000 @ 2.875%) . This first lien will pay down to about $245,000 thru amortization over the 36 months.
The WIFE would be the DEBTOR responsible to make the I/O payments of $8,312.50 each month and the future balloon payment due of $1,1425,000

Q- How does the Husband get his funds out to complete the Divorce?
A- The thought is He SELLS his $1,425,000 WRAP AROUND Note at a DISCOUNT to an INVESTOR who agrees to fund around $900,000 In Cash. From that $900,000 in Cash paid for the Note, the About to be EX-Husband receives his $550K that he agreed to accept to SELL his 50% interest in the home. The EX-Wife now owns 100% of the Home. $300,000 of the proceeds paid for the Note will go toward helping her make the $8,312.50 I/O payment each month for the next 3 years. (in essence she is borrowing excess funds to help make the payments)
$8,312.50 x 36 months = $299,250 allocated to MAKE the payments on the $1,425,000 Note obligation.

Benefits for the (EX) Husband;
* he gets his $550K he agreed to accept
* his children and (EX) wife get to STAY in the home as a family unit during the very formative High School days

Benefits for the (EX) wife:
* She gets to stay in the home with the Children thru the High School Days
* She has the extra $300,000 in funds (borrowed) thru the sale of he Note to help her make these payments for the next 36 Months
* She did not have to borrow HARD MONEY rates and its doubtful a lender would even make a LOAN Here given her inability to repay it.

Benefits for the Note Investor:

* They fund $900,000 +/- to purchase at a DISCOUNT The WRAP AROUND $1,425,000 I/O 7% Note with $8,312.50 monthly payments and and only have to put out $900,000 (since its sitting behind and WRAPPING a $270K 1st lien). They will get monthly payments of $7,112.50 NET To them each month (remember $8,312.50 is coming in on the WRAP AROUND Note of $1,425,000 but $1,200.00 is still DUE and GOING OUT to pay the $270K underlying 1st lien. ) and then when the $1,425,000 Note matures in 36 Months they will also receive approx. $1,180,000 to THEM (this is the $1,425,000 DUE on the WRAP AROUND Note - MINUS the $245K due on the 1st lien payoff -leaving $1,180,000 to them)

Q- Who would buy such a Note ?
A- Their calculated return would be a 17.44% YTM - yield to maturity on their $900,000 invested.

QUESTION; WHAT issues or possible "Loan" issues or wrinkles does anyone see here ?
Remember its the (EX) Husband Taking back the $1,425,000 DOT and Note (making the loan) here in an effort for
the (EX) Wife to be able to BUYOUT his 50% interest in the home and continue to stay in the home. This is NOT a
Traditional LOAN ORIGINATION

1. Since this is an owner occupied property, the ability to repay is not there and if the wife ever defaults in the future she can claim it was a fraudulent loan.

2. The husband would need to state to the note seller where the money is going to be used. Most likely no note buyer would buy this loan based on those facts.

3. What is to stop the husband from just keeping the $900k and not giving the wife a penny?

While it looks all good, I would be curious to see if an attorney would view this as mortgage fraud.

On a sidenote: I will get up on my hill and say we see so many instances where someone cannot afford a property but think by the graces of their believer they can save it. If oyu cannot afford it you cannot afford it and move it. It is unfortunate for them and for the kids, but there is this thing called reality.

I assume the woman is not over 62 so she cannot get a reverse mortgage.

Sell the house, move on and find a new house you can afford.

7e investments53 Reviews

Website View Page

1 Reply

Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

2y

Probably doable if it were a commercial income producing property instead of residential ……

Private Mortgage Financing Partners, LLC

Website View Page

0 Reply

Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

2y

Zsa Zsa Gabor faced almost exactly the same situation. Her solution was to marry Conrad Hilton.

Private Mortgage Financing Partners, LLC

Website View Page

1 Reply

Michael MorrongielloPro Member

OP

Specialist · Napa, CA · Member since 2015 · 123 posts · 31 votes

2y

To be clear FBO this a RESIDENTIAL use House. Its occupied by the Wife and Her Children who wish to STAY there. (Thus cannot be considered commercial or commercial income producing)

Chris - agree with all of your points. The parties are in agreement about what the husband will take if he can get his $550K in cash out. The BIG issue is the EX-Wife who wishes to maintain a life style she clearly cannot afford and wants to STAY in the home with the Children BUT cannot AFFORD to make the payments on such DEBT that would allow for that (thus her need for $300K +/- in extra proceeds that would in essence be used to make those payments for the 3 years)

Sadly yes there are consequences when families break up, separation's and marital divorce happens.

Even though WE are NOT originating a loan here; it would be the EX-Husband who would be "originating" the Loan (by taking back the Deed of Trust and Note) in order to SELL his 50% interest in the house, the TIE IN is with our BUYING or INVESTING in the purchase of the DOT and Note to generate CASH to him, and CASH OUT to Her is where
this becomes a "Gray Area" of whether it violates any of the CFPB Consumer Financial Protection Bureaus requirements and could be re-characterized as a high cost LOAN IN DISGUISE

ALTERNATIVE THINKING
We are thinking a better way to go here IF the EX-Wife agrees; it to
SELL the house NOW, pay off the EX- Husband and enter into a 3 year LEASEBACK with the buyer of the home. She will now have the funds to pay the RENT and also can maintain her lifestyle. What she will have to give up though is a LESSER Sales Price that will have to be accepted for the home sale Vs getting TOP DOLLAR estimated to be $2M to $2.2M + .
She will have to ACCEPT LESS since the Investor BUYING the home and agreeing to lease it back will have her locked in for the next 3 years.

0 Reply

Michael MorrongielloPro Member

OP

Specialist · Napa, CA · Member since 2015 · 123 posts · 31 votes

2y

Quote from @Don Konipol:

Zsa Zsa Gabor faced almost exactly the same situation. Her solution was to marry Conrad Hilton.

Don, yes - Yes TOO FUNNY, and All kidding aside; I guess she could consider "marrying up"
Sadly these types of family dynamics happen all the time

0 Reply

Matt Devincenzo

Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes

2y

It seems like another option here would be some type of 'life estate' type arrangement....instead of death it would be kids being a certain age.

If for example you could buy sub2, and pay the husband $550K now. Carrying costs of $50K per year, wife holds her equity as a note DOS, and we sell in 3 years...I assume no appreciation.

Purchase $550K (to husband), $550K note to wife, $270K sub2

Year 1 $50K (PITI plus holding costs)
Year 2 $50K (PITI plus holding costs)

Year 3 $2M sale (10% sales cost, $250K sub2 payoff, $550K wife payoff) net ~$1M ($650K return of capital $350K profit)

That should be about a 20% IRR, any appreciation or higher sale price results in a higher IRR. Maybe the wife's equity should be lower to account for the long 'free' stay...

0 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

2y

Quote from @Michael Morrongiello:

To be clear FBO this a RESIDENTIAL use House. Its occupied by the Wife and Her Children who wish to STAY there. (Thus cannot be considered commercial or commercial income producing)

Chris - agree with all of your points. The parties are in agreement about what the husband will take if he can get his $550K in cash out. The BIG issue is the EX-Wife who wishes to maintain a life style she clearly cannot afford and wants to STAY in the home with the Children BUT cannot AFFORD to make the payments on such DEBT that would allow for that (thus her need for $300K +/- in extra proceeds that would in essence be used to make those payments for the 3 years)

Sadly yes there are consequences when families break up, separation's and marital divorce happens.

Even though WE are NOT originating a loan here; it would be the EX-Husband who would be "originating" the Loan (by taking back the Deed of Trust and Note) in order to SELL his 50% interest in the house, the TIE IN is with our BUYING or INVESTING in the purchase of the DOT and Note to generate CASH to him, and CASH OUT to Her is where
this becomes a "Gray Area" of whether it violates any of the CFPB Consumer Financial Protection Bureaus requirements and could be re-characterized as a high cost LOAN IN DISGUISE

ALTERNATIVE THINKING
We are thinking a better way to go here IF the EX-Wife agrees; it to
SELL the house NOW, pay off the EX- Husband and enter into a 3 year LEASEBACK with the buyer of the home. She will now have the funds to pay the RENT and also can maintain her lifestyle. What she will have to give up though is a LESSER Sales Price that will have to be accepted for the home sale Vs getting TOP DOLLAR estimated to be $2M to $2.2M + .
She will have to ACCEPT LESS since the Investor BUYING the home and agreeing to lease it back will have her locked in for the next 3 years.

What is her plan in 3 years when she runs out of $. I will consider giving them $1M+ to rent it back for $100k per year for 3 years.

7e investments53 Reviews

Website View Page

0 Reply

Rick Pozos

Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes

2y

The biggest problem is that the woman can not afford to live there. This is the American problem, we want but can't afford.

I have purchased so many houses a year or 2 or 3 after the divorce. She said, I was trying, working 2 or 3 jobs to pay the bills, but just couldn't. The kids dont work, but still want to go out to eat every day. They have to have the Nike and $200 blue jeans. Sadly, Mom can not keep up.

Sometimes people need to face reality and move on. Sorry for the kids who want to stay at that school, life happens. Maybe they can rent an apartment in the district?

Big change in lifestyle happens when divorce happens. Most people just dont want to face it though.

0 Reply

Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

2y

If the house can actually be sold for the $2 million quoted, then I believe the best outcome from a FINANCIAL viewpoint is to sell the property for the $2 million, pay the spouse $550k, pay the $270k mortgage balance, leaving the wife with $1,180,000 cash. This can be invested pretty conservatively to yield about $75k annual income. Assuming the wife is earning $50k + per annum, and not receiving support payments from spouse, should allow her to live okay. I would think she’s to receive child support payments of a fairly significant amount. We may be topping out as to real estate values. This plus the fact that when the kids are gone her housing needs will change, lead me to recommend that she rents for next 3 years until kids go to college, then consider WHERE she wants to live; the size of the house, condo or apartment, etc. We also don’t know what other assets she will be receiving in divorce. Is she due part of retirement plan? Other investments? Other property? Maybe engage an independent financial advisor (not a stockbroker or insurance salesman DISGUISED as a financial advisor!

Private Mortgage Financing Partners, LLC

Website View Page

1 Reply

Michael MorrongielloPro Member

OP

Specialist · Napa, CA · Member since 2015 · 123 posts · 31 votes

2y

Quote from @Chris Seveney:

Quote from @Michael Morrongiello:

To be clear FBO this a RESIDENTIAL use House. Its occupied by the Wife and Her Children who wish to STAY there. (Thus cannot be considered commercial or commercial income producing)

Chris - agree with all of your points. The parties are in agreement about what the husband will take if he can get his $550K in cash out. The BIG issue is the EX-Wife who wishes to maintain a life style she clearly cannot afford and wants to STAY in the home with the Children BUT cannot AFFORD to make the payments on such DEBT that would allow for that (thus her need for $300K +/- in extra proceeds that would in essence be used to make those payments for the 3 years)

Sadly yes there are consequences when families break up, separation's and marital divorce happens.

Even though WE are NOT originating a loan here; it would be the EX-Husband who would be "originating" the Loan (by taking back the Deed of Trust and Note) in order to SELL his 50% interest in the house, the TIE IN is with our BUYING or INVESTING in the purchase of the DOT and Note to generate CASH to him, and CASH OUT to Her is where
this becomes a "Gray Area" of whether it violates any of the CFPB Consumer Financial Protection Bureaus requirements and could be re-characterized as a high cost LOAN IN DISGUISE

ALTERNATIVE THINKING
We are thinking a better way to go here IF the EX-Wife agrees; it to
SELL the house NOW, pay off the EX- Husband and enter into a 3 year LEASEBACK with the buyer of the home. She will now have the funds to pay the RENT and also can maintain her lifestyle. What she will have to give up though is a LESSER Sales Price that will have to be accepted for the home sale Vs getting TOP DOLLAR estimated to be $2M to $2.2M + .
She will have to ACCEPT LESS since the Investor BUYING the home and agreeing to lease it back will have her locked in for the next 3 years.

What is her plan in 3 years when she runs out of $. I will consider giving them $1M+ to rent it back for $100k per year for 3 years.

Her GRAND PLAN is to live in the house with the Children and then SELL it at the end of 24 or 36 Months from Now. She is really trying to create a "soft landing" for her and her Kids as this Divorce unfolds. We see this often. She feels IF interest rates come down as it looks like they will then in this highly desirable area where residential inventory is still VERY tight, Values will continue to > CLIMB Higher. She is not looking to maintain her lifestyle in this home forever and is realistic in accepting that she will HAVE TO downsize in the Future.

No way will she accept $1M to sell a $2M to $2.2M current value home and rent it back at $8,333 per month ($100K/ Yr). Market Rent is around $6K +/- per month, and she would be better off just listing it NOW and SELLING it traditionally, paying a REALTOR, etc. (yes that would involve a move) and then downsizing.

A SALE at SOME (reasonable) reduced sales price with the BUYER then agreeing to LEASE BACK the home to her for 24-36 months seems like the best path to pursue. However the
EX Husband was ONLY willing to accept $550K if she could pay it to him quickly and NOT thru the SALE of THEIR Home; otherwise he can force a PARTITION SALE of the home and thru such a sale receive FAR MORE than the $550K he agreed to accept if it could be paid quickly to him. Eg. Assuming a $2M Sale Price, Minus $100K (5%) RE commission, leaves $1.9M - MINUS their $270K in Debt leaves $ 1,630,000 for them to Split (he gets $815K and she gets $815K)

0 Reply

Need Solution to KEEP someone IN their House + Plus GET CASH to settle obligations

Need Solution to KEEP someone IN their House + Plus GET CASH to settle obligations

Most Popular Reply

11 Replies