Long Island City, NY · Member since 2015 · 13 posts · 1 vote
Hey guys! I have a strategy/financing question. I am curious how to approach a homeowner that is about to lose their house due to 8k in back taxes that they cannot afford. They want to stay in the home as it has special meaning to them. Is this prime for a Sale Leaseback? Or are their other strategies that would be more beneficial? I want to take ownership of the house but still allow them to live there. Obviously I am trying to pay the least possible for the property. I am also considering assuming the mortgage but for me to cash flow they will be paying me more than what they currently pay for the mortgage when it seems they are already on a tight budget. Thanks for any feedback!
Hi @Frank M.! I see two big problems with a sale leaseback in this situation. First, if they can't afford their current payment, they definitely won't be able to afford your (higher) lease payment. This is an eviction in the making; it's only a matter of time. Which brings up the second problem...
After you've paid their $8K in back taxes and purchased the home subject to the existing mortgage, they are going to eventually get into financial trouble again. You're going to try to evict. And that's when they are going to claim that they didn't understand that they were selling their house and that they've been bamboozled by a sneaky real estate operator (that's you!). They'll forget the tight spot you got them out of and demand their house back. Maybe a judge listens, maybe not. Either way, you'll be the bad guy and will lose, no matter the outcome.
Whatever "special meaning" the house holds for these folks wasn't enough for them to keep up the tax payments. They need a cheaper place to live.
Purchase the home, if it makes sense, but I'd strongly recommend paying them a few bucks to get them out and then finding a tenant who can actually afford to live there.
Hi @Frank M.! I see two big problems with a sale leaseback in this situation. First, if they can't afford their current payment, they definitely won't be able to afford your (higher) lease payment. This is an eviction in the making; it's only a matter of time. Which brings up the second problem...
After you've paid their $8K in back taxes and purchased the home subject to the existing mortgage, they are going to eventually get into financial trouble again. You're going to try to evict. And that's when they are going to claim that they didn't understand that they were selling their house and that they've been bamboozled by a sneaky real estate operator (that's you!). They'll forget the tight spot you got them out of and demand their house back. Maybe a judge listens, maybe not. Either way, you'll be the bad guy and will lose, no matter the outcome.
Whatever "special meaning" the house holds for these folks wasn't enough for them to keep up the tax payments. They need a cheaper place to live.
Purchase the home, if it makes sense, but I'd strongly recommend paying them a few bucks to get them out and then finding a tenant who can actually afford to live there.
Hi @Frank M.! I see two big problems with a sale leaseback in this situation. First, if they can't afford their current payment, they definitely won't be able to afford your (higher) lease payment. This is an eviction in the making; it's only a matter of time. Which brings up the second problem...
After you've paid their $8K in back taxes and purchased the home subject to the existing mortgage, they are going to eventually get into financial trouble again. You're going to try to evict. And that's when they are going to claim that they didn't understand that they were selling their house and that they've been bamboozled by a sneaky real estate operator (that's you!). They'll forget the tight spot you got them out of and demand their house back. Maybe a judge listens, maybe not. Either way, you'll be the bad guy and will lose, no matter the outcome.
Whatever "special meaning" the house holds for these folks wasn't enough for them to keep up the tax payments. They need a cheaper place to live.
Purchase the home, if it makes sense, but I'd strongly recommend paying them a few bucks to get them out and then finding a tenant who can actually afford to live there.
Thanks Mitch! I really appreciate the feedback. After doing some reaearch I found out they owe 24k + 9k taxes = 33k but the house is worth 60k. Should i offer them 38k and see if they will move out with a 5k profit on it? I feel like there is a deal right at my fingertips but I can't make it happen. They obviously don't want to be foreclosed on but I am curious why they would sell to me at a discount if they can just sell it on the open market for 60k. I DO have an all cash offer so that may make sense for them. Thanks again for the reply it was very helpful.
@Frank M., I would probably offer to take over payments, get caught up on the taxes, and give them enough money to move out (I'm imagining a thousand bucks or so).
Without your help the tax sale will take place and they'll get nothing. You're already the hero here, so I see no need to give them $5K upfront. If for no other reason, you'll need some of that money to address the repairs and deferred maintenance that always exists in situations like these. If they didn't pay their property taxes, they probably didn't maintain the house in tip-top shape.
The key here is that underlying mortgage. If it's really good (i.e. has a fixed, low interest rate) and would allow for solid cashflow (>$200/mo), then that's a loan worth holding onto for as long as you can!
Completely agree with @Mitch Messer first post about no sale/leasebacks. It doesn't work out all roses like we'd like and in the new world since the great recession, they are addressed as an unlawful practice with triple damage awards possible!
With a good handle on what repairs are needed, I'd base my offer. $38k PP on a $60k asset is more discount than I would need as a buy and holder, but it may need $20k in repairs, right? If the underlying mortgage is a decent long-term, fixed rate I would try and sub2 it. If there's a balloon, an ARM or a rate above about 4.5%, I'd buy clean with cash. Get title insurance and whole nine. Sounds like a good find!
I work the tax sale game pretty heavily and can tell you.
No good deed goes unpunished.
Lets say you lease back to them and it doesn't work out and you have to evict or foreclose on them. Despite helping them out you will likely be looked at as the bad guy. If the story gets out you will be portrayed as someone who preyed on helpless victims.
That may not be true. Depending on state law they may be entitled to a bid surplus.
As others have said probably your best option is to just buy it and have them move out. If they don't ultimately come to that conclusion there probably isn't a deal here. Just because someone should be motivated does not mean they will be.