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Alan Dolling
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BFF property to rescue!

Alan Dolling
Pro Member
Posted Dec 22 2023, 11:40

Hi there, this is an off topic subject, and need the input/feedback of the  brilliant minds of this community.  My bff had defaulted mortgage payments (90days) now and can not take out cash out refi because of the current “bunkcruptcy” status of credit due to previous divorce and currently also bff lost a job, but looking to get hired again.  Property’s 1st and 2nd liens total $380K and property current value is at $1.1M (North California).  Homeowner was advised by one of the lender that can take out HELoan but must have someone with solid credit score sign up for it, and that could be us. Question for this community is how can we, our credit be protected if bff “hypothetically” can not continue paying mortgage, and might default again? Highly unlikely knowing bff, but just in case that scenario happens, what can we do to prevent our credit go down the mud as well?  
I also have an idea that would it be a good idea to convince bff if we do the “subject to” for now? We will assume the loan through “subject to” then once it’s on our name we will do refinance and then once bff’s financial status is solid, we will sell back the property to bff, is this legal? We hope so, but we don’t know.  May be some of you or any of you had experienced on this, so would appreciate your input.  
If you have better suggestion/s, to help bff Mom and son won’t lost the only asset they have please help us. Let us know all and options we have to save this property for them.    We are eager to help this single Mom and son, but we would like to do it with caution as well because we also have family/children to protect,  by keeping our finances in order.  
Thank you and Happy Holidays! 

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Greg Scott
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  • Rental Property Investor
  • SE Michigan
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Greg Scott
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  • SE Michigan
Replied Dec 22 2023, 11:59

While your heart is in the right place, this sounds like the recipe for destruction of a friendship. 

If you hope to salvage this friendship and not get caught in quicksand yourself, I would make the deal as clean and simple as possible. 

I'd recommend making it a loan, secured by the house in 3rd position, with no monthly payments and a 5 year balloon.  (Hopefully you have a good chunk of cash to loan.) Five years should be plenty of time for your friend to get his feet underneath him and either pay you back, refinance all mortgages, or get another loan to retire yours.  Doing things this way will not destroy your credit. Since you are not expecting any payments, you won't get angry at your friend if he doesn't.  However, if your friend fails to pay you off in 5 years, he wasn't your friend anyway and you will eventually get your money back, even if it is only when he sells.

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Alan Dolling
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Alan Dolling
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Replied Dec 22 2023, 17:05

Thank you, Greg Scott, appreciate your reply. 

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Byron Valles
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Byron Valles
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Replied Dec 22 2023, 17:40

You're a good friend. I'd like to add a credit score hack to help your friend get back to a position where they could refi. 

From what I read it sounds like you have great credit. You can add your friend as an authorized user on one of your credit cards (just probably don't give them the card). All of your great information (length of credit, on-time payment history, loan/balance ratio, etc) would reflect in your friend's credit score right away. This is by far the fastest way to help someone with limited income raise their credit score. 

I did this with my mother this year. Without going into much detail, her credit score was awful and by simply adding her as an authorized user on one of my oldest and higher credit limit CCs, her score jumped by about 60 points in a week allowing her to get financing to purchase her first home. 

Best of luck!

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Alan Dolling
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Alan Dolling
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Replied Dec 22 2023, 17:53
Quote from @Byron Valles:

You're a good friend. I'd like to add a credit score hack to help your friend get back to a position where they could refi. 

From what I read it sounds like you have great credit. You can add your friend as an authorized user on one of your credit cards (just probably don't give them the card). All of your great information (length of credit, on-time payment history, loan/balance ratio, etc) would reflect in your friend's credit score right away. This is by far the fastest way to help someone with limited income raise their credit score. 

I did this with my mother this year. Without going into much detail, her credit score was awful and by simply adding her as an authorized user on one of my oldest and higher credit limit CCs, her score jumped by about 60 points in a week allowing her to get financing to purchase her first home. 

Best of luck!


 This a great idea, thank you so much Byron, appreciate you. 
Happy Holidays! 

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Scott Mac
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Scott Mac
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Replied Dec 22 2023, 19:46

Maybe buy the house And rent it back to them long term with a month to month lease.

Seems like they would get their equity out of it in that manner and still get to live in the house.

Good Luck!

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Kevin Sobilo#1 Legal & Legislation Contributor
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Kevin Sobilo#1 Legal & Legislation Contributor
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Replied Dec 22 2023, 19:57

@Alan Dolling, sell it and either rent or downsize.

They are suffering financially and that equity is locked up in the house with them unable to use it. Even if they were able to refi, it would be at a MUCH higher rate then they are probably now paying and their payment would spike higher.

Sell it, pocket proceeds, and probably rent a while but at least be financially solvent and stable while doing so. 

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Alan Dolling
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Alan Dolling
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Replied Dec 23 2023, 17:12
Quote from @Scott Mac:

Maybe buy the house And rent it back to them long term with a month to month lease.

Seems like they would get their equity out of it in that manner and still get to live in the house.

Good Luck!

Thank you @Scott Mac, another sound idea and will definitely look into this. 
Appreciate the response and Happy Holidays! 

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Alan Dolling
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Alan Dolling
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Replied Dec 23 2023, 17:16
Quote from @Kevin Sobilo:

@Alan Dolling, sell it and either rent or downsize.

They are suffering financially and that equity is locked up in the house with them unable to use it. Even if they were able to refi, it would be at a MUCH higher rate then they are probably now paying and their payment would spike higher.

Sell it, pocket proceeds, and probably rent a while but at least be financially solvent and stable while doing so. 

@Kevin Sobilo, thank you, definitely the best route but my bff still processing this idea when I brought this up to her.  
Appreciate your input and Happy Holidays! 

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Kevin Sobilo#1 Legal & Legislation Contributor
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Kevin Sobilo#1 Legal & Legislation Contributor
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Replied Dec 24 2023, 03:46
Quote from @Alan Dolling:
Quote from @Kevin Sobilo:

@Alan Dolling, sell it and either rent or downsize.

They are suffering financially and that equity is locked up in the house with them unable to use it. Even if they were able to refi, it would be at a MUCH higher rate then they are probably now paying and their payment would spike higher.

Sell it, pocket proceeds, and probably rent a while but at least be financially solvent and stable while doing so. 

@Kevin Sobilo, thank you, definitely the best route but my bff still processing this idea when I brought this up to her.  
Appreciate your input and Happy Holidays! 

One more factor in selling it is taxes. If they have a profit selling the house the first $250k of profit is excluded from federal tax for a single person or $500k for a married couple filing jointly because it was their primary residence.

Not many times in life where you can earn a healthy profit and put it in your pocket and keep the tax man from taking a healthy cut.

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Rick Albert#2 House Hacking Contributor
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Rick Albert#2 House Hacking Contributor
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Replied Dec 26 2023, 11:13

To be clear, they have a property that if they sold, would net around $654,000 not factoring in taxes? When it comes to money or credit, you don't want to get involved other than provide emotional support and advice. They would be far better selling and using the cash to downsize with no mortgage. Start fresh. That is the best advice you can give them. The bankruptcy isn't going to help on finding a rental and later on when their credit, work, etc. is stabilized, then they can get the HELOC or cash out refi.