Looking for some creative financing idea from the experts!

11 Replies

Looking for some solid ideas for a win-win situation.  


In 2012 I bought my first home while engaged. We paid market value and did some minor work (diy kitchen reno, converted bedroom to formal dining, new flooring in partially finished basement, landscaping). 1 year later we split up and I still reside in the house. We are co-owner and co-financed. Now we are looking for ways to separate financially but I am not sure I want to give the house up. 

Details:

FHA appraisal (2012): 165,000

ARV in 2012 was: 180,000

Comps are hard to come by and the values have slightly declined since I've been here (now comps are: 160,000-170,000)

Loan balance: 153,000

PITI: 1135

Rent Comps: 1300-1400

I dont think I would have a problem with renting or lease option this property at all. The problem is needing to remove my "ex" from the situation. I could buy him out for under $5K, but I know he wont sign over the deed until the mortgage paid in full and I really don't want to go refinance in my name just to get around this because I want to avoid all unnecessary costs.

Can anyone advise on a wraparound mortgage in this situation to free up my ex to go buy another house? Will it work considering I am on the original loan also? I would really, really reall like to leave the existing financing in place as it is a great rate and an FHA loan that wont carry the PMI forever like the new ones.

Please anyone and everyone...Help a girl out!

Sub-2, subject 2, wraparound, creative financing, lease option, contract for deed, existing financing

It's an FHA loan. Contact them and inquire about removing him by you assuming the whole loan. If you will qualify, that may fly. Then just pay him and Quit Claim Deed him from the title. Option 2 is refinance.

Stop with the Wrap Around creative idea.  That's not where to start.  Not to mention, that will not solve your issue.

I would focus all your money, depending on your finances, on paying for costs of assumption or worst case, refinance.  Deal with the $5k separate with your ex.  If it comes down to it, to get him to agree to move forward and if your finances are tight, secure him with a second lien with a specific subordination clause to the senior mortgagee.  Notify your Mortgagee of such things, there is a specific instrument template.  Then make payments and pay him off.  Unless, he is willing to go unsecured or barter for some other collateral or payoff arrangement.

The best way is to re-finance in your name, and if you decide to go, the route subject or wrap remembers the lender can call the note due and do you have the funds to cash out the lender. Are both of you paying the mortgage?


Joe Gore

@Brittani Gardner  ok I'm a creative guy....

Rule of thumb, it takes 10 percent to sell with an agent with commissions, closing costs, sellers concessions, holding costs, etc.

So selling on terms might work, but you have a divorce with usually adversarial partners.

If comps are $160 worst case, you both might pay $16K to sell, netting $146K, owing $153.

I would see a real estate attorney and and negotiate some agreeable settlement.  Selling on terms and getting clear title is tricky, and you need an attorney for this.

Your PITI vs market rent is ok but not great, so I would look at a contract for deed sale or a wrap, and try to get a payment higher. Know if the buyer on these agreements default, you have to repossess not evict.

Know you have a Due on Sale issue, and that if notified, you need a strategy to pay off the underlying loan.  But it rarely is called if the payment is made.

You could also look at a ROFR and a Lease.  Right of First Refusal is a good tool to assist someone to buy, I would work with the tenant to get financed and pay all closing costs.

Hope that helps!

Brian

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

@Brian Gibbons - "Your PITI vs market rent is ok but not great, so I would look at a contract for deed sale or a wrap, and try to get a payment higher. Know if the buyer on these agreements default, you have to repossess not evict."

Questions: 

1) Is it possible for me to wrap if I am on the original note and a noteholder for the end buyer?

2) Is it more hassle to repossess vs. evicting?

Brian Gibbons - this bad advice.

You are not SELLING....who the heck are you Selling too? You are already on title.

 Stop the madness.  It boggles my mind sometimes when we look to the extraordinary before the ordinary.  

All you want to do is remove the ex from title and the mortgage.  It's really that simple.


REFINANCE - $153K / $170K = 90% LTV - you are in the church. Closing costs are not as high as a purchase. It's a rate and term refinance. Maybe you contribute a couple grand to the closing based on appraisal. Some lenders will pay for closing cost to do a streamline refinance. That is why I mentioned deal with the loan first before the ex, so you both understand the transactions capital demands.

Folks split up all the time.  It's not new in the Mortgage world.  Chances are, they will let you assume the liability all by yourself.  It will cost you a fee (+/- 1%) to get looked at and underwritten, far less expensive than a refinance.  

Priority Rank:
1) Assume (Mod) / Quit - Ex
2) Refinance

The OP doesn't understand what she is doing with a Wrap.  A Wrap should not even be on the radar here.  A Wrap will not remove the underlying mortgage nor will it remove the Ex as a Borrower.  So, you get nowhere.  Its a HORRIBLE idea. 

Most important: IF YOU WRAP A FHA LOAN THERE WILL CAN BE SERVER CONSEQUENCES. There is a whole thread on this under Creative Strategies - Wrap FHA Mortgage - go read it.

Further, if you amend the occupancy of the property to NOO by putting tenants in or renting or messing with the silly Wrap idea, you will screw up any future deal. You want the occupancy to stay Owner Occupied, that affords you the best loan term review.

This is not creative financing.  This is being silly and trying to make stuff up that is not fully understood.  All the while, the easy and every day solution is slapping you in the face.

....but what do I know.

Rant over.

It looks like Gurus have power over people when they are teaching wraps, subject2.


Joe Gore

Here's the thing. The fact that you are divorced means you can technically force a sale of that house. If you do, then the agent's commissions would eat up what little bit of equity you have left and you'll both probably have to come out of pocket to sell it.

So while I understand you want to keep the house for yourself, you should still look to use the fact above to get him off this loan.  You shouldn't have to pay him anything.

Just tell him either he signs off on the refi and you remove him from the loan and from title or else you'll force a sale and you'll both end up out of pocket to close.

Not to mention the fact that he would probably love to get his name off that loan so he can qualify for a loan on another home.

But what I don't understand is why you keep asking about a wrap? What are you going to wrap?  Are you talking about selling your house to someone else with seller financing (i.e. the wrap).  So that you become the bank on the one loan and they pay you and you pay your mortgage?

The problem with that is that the new buyer is going to want to be on title. And there's no way that your ex is going to sign off on a deal like that. He'd have to agree to be removed from title for the new owners yet he'd still be on the hook for the original loan.

Thats a no-win situation for him.

To me, I think your best bet is to either refi the home in your name only and remove him from the loan and title - and do so without paying him a penny (by leveraging the fact that if you forced a sale, he'd have to come to close with money to pay all the fees).

OR you just stay in the house until such time that you can sell it without having to come out of pocket or stay there forever if thats where you really want to live..........

Bottom line is there's no really deal to be made here. Not enough equity and not enough cash flow were it to be converted to a rental to really make sense as an investment property.

Furthermore, your X could force a sale and then are you able to refinance.


Joe Gore

Geeez, what I read was engaged, not married. He's not an ex, if he were there would be a divorce and the deed issue would have been taken care of.

You can sue for patrician of the property, the court may tell him to sell, most like it will order a sale, at auction and both will probably lose money and end up with a deficiency judgment.

Even if you got the house and bought him off, the bank doesn't have to release either of you, even if he signs the deed over. The only way to get him off the loan is to payoff that obligation.

So, you need to refinance or sell it and get the loan paid off.

With him on the note and out of your life, I suggest you not try to get creative with any sale. You can lease it until you get more equity and try to refi it yourself later on.

I suggest that he gives you a specific power of attorney to lease the property as well. You only hold a one half interest, anything you do should have his signature or he needs to appoint you to manage the place. If you do anything alone and your deal blows up, not only can the buyer come after you but so could he, so stay away from any creative stuff.

What you can do is sell a one half undivided interest, if you found someone with the guts to do it and take him on for the other half, not likely unless you know an astute RE type and no, I don't buy up there, sorry.

I suggest you see an attorney. Good luck. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Thanks for the advice everyone!