Purchase / Foreclosure Scenario - Advice

5 Replies

Hello All!

I wanted to run by a scenario I am looking more into. I came across an HOA foreclosure in an awesome area, I have been looking at for some time. The amount due to the HOA association is $9K. I understand that in this case, the 1st lien which is the mortgage will not disappear as the winning bidder will have a due on clause of the remaining amount (state is Florida). The property was bought only 2 years ago with a loan amount of $183K over 30 years. Market value currently is around $250K.

I have been doing some research looking through the case dockets, etc. and it does appear the the couple is going through some hard financial times currently. Possible health issues / lost job, etc.

Instead of waiting for this to go to auction I was thinking of reaching out to the couple personally to try and work out a deal.

There are obviously multiple avenues I could go. I have thought of offering to pay the HOA fees off in full to cancel the foreclosure and then give a simple cash offer OR try and go the seller financing route. If bought, I don't want them to live there as I would plan to renovate and rent myself.

Assuming the left over mortgage lien is still around $170-175K that is more than id be willing to pay cash for, hence my thought of seller financing. Unless they did the process of a short sale (I am not to familiar with how this works or what qualifies per the lender)

I was curious to see in this scenario how you would try to structure this? 

Thanks!

@Jake Boss Why not just have them sell you the property for say $210k, and you just get a mortgage from the bank, which would then pay off their $183k and the $9k HOA fees at closing? They would get a few extra bucks to move out, and you get a below market deal.

The seller financing won't truly work as they have an existing mortgage.  Short sale won't work as the market value is substantially more than the mortgage loan.

I think that would be the cleanest route unless I'm missing something.

You need more info. if they are behind on their HOA, high probability they were/are behind on their 1st lien as well. You need a better understanding of their goals and the true figures that are owed to try to structure a deal. You should reach out to see if you can support them in any fashion.

@Tom S. I have thought of that the reasoning would be I was hoping not to put that much cash in upfront on this deal. With the auction being less than 30 days away, it would need to be quite a quick turn around unless I went HML/private.

I was thinking though if I let it go to auction and win. I always have the option of either waiting for the 1st mortgage lien to foreclosure on me (could be years) IF i did not want to keep the property as that interest will obviously keep climbing. OR try and negotiate with the bank once I have possession of the deed after the auction.

@Brett Goldsmith 100% agree, I basically already penciled in the full original mortgage amount left over on the note. I did some more digging and it was an FHA loan they got as well with only around 5-6K down. Given the historic FHA rates back in May 2019 assume it'd be around a 4.5% plus with HOA monthly fees there payments got to be around $1700-1800 a month.

Originally posted by @Jake Boss :

@Brett Goldsmith 100% agree, I basically already penciled in the full original mortgage amount left over on the note. I did some more digging and it was an FHA loan they got as well with only around 5-6K down. Given the historic FHA rates back in May 2019 assume it'd be around a 4.5% plus with HOA monthly fees there payments got to be around $1700-1800 a month.

An FHA loan is an owner occ loan, so if you took the property subject to and rented it they would likely call it due. Best advice as was given above is to convince them to sell to you. Given their situation they will likely file BK.