Would you lend money on this deal? 10k loan on 40k in equity

[Account Closed]

I met with a seller through a pre-foreclosure marketing campaign and have been presented with the following. Using the house as security, the sellers wants a Balloon, 10k loan with 4 points up front and 12% interest for a 6 month term. The house is a second property under his mothers name, and not a homestead. It currently has a mortgage balance of 135k and property is worth roughly 175k.

However, after meeting with him I KNOW he will be hard pressed to pay back this loan and I get the strong feeling he will refuse to leave voluntarily. (He said, "listen, I make $21 a hour. I can pay $12,000 back easily by working overtime.")

So, even if I get his mother to agree to the terms, would you make the loan KNOWING that it would be difficult to repay will not be able to repay? Even with expected attorney and eviction fees the numbers work for me.

Thoughts?

[Jeff S.]

Originally posted by @Account Closed:

However, after meeting with him I KNOW he will be hard pressed to pay back this loan... 

... would you make the loan KNOWING that it would be difficult to repay...

You didn't mention the use of the money but I assume it was to help the borrower stay in their house. This falls squarely under Dodd-Frank.

I don't know what your marketing campaign is trying to accomplish, but this is a predatory loan. Sorry to be harsh, but you knew (in capital letters) that the seller does not have the capacity to repay the debt and you were even thinking of asking if it made sense to loan them money secured by the property?

I'd be very careful advertising to help those under the threat of foreclosure by loaning to them, if that is your strategy. Plus, why would you loan in second position with a pretty good chance that you would get wiped out in a foreclosure?

I'm glad you re-thought this one, even though it was for a different reason.

Please be careful, Greg. This is not a way to break into the business.