Taking Over Payments - Home Equity Line of Credit - $0 Down

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Taking Over Payments - Home Equity Line of Credit - $0 Down

Michael Hayes
Investor · Memphis, TN · Member since 2015 · 369 posts · 233 votes

BP family what's going on? I have a question on how to structure a deal. I received a call from a motivated seller who is looking to just "let her house go". ARV of the house is $55k, but she has a home equity line of credit of $61k making payments right at $200 a month. No mortgage. I visited the house today and it is in A1 shape. I could literally move a tenant in as soon as I takeover with no repairs needed. The house would rent for $700/mo leaving me with very nice cash flow. Not interested in flipping and want to hold long term, so not worried about the balance.

How exactly is this deal structured though? Would it be different taking over a HELOC as opposed to taking over payments on a mortgage? If the title transfers to my company, but we leave the HELOC in her name and just make the payments, is there a way to make sure she can no longer use the line to make purchases etc.? Never structured one of these before, so looking for as much info as possible from someone who may be experienced. She is sending her HELOC information to my sister/agents email to take a look at the details on Monday. If everything checks out, I would be looking to take over ASAP.

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y

@Michael Hayes

Just for clarity a HELOC is a mortgage. Some important questions you haven't answered. Perhaps they will be answered when you see the HELOC docs. What is the interest rate? Is it adjustable and how often? How long will the HELOC stay in place? Are her $200 payments just covering interest now, or is she paying down some principal?

I suspect when you get these answers you will see this is not anywhere near as good as you might think.

When I had a HELOC, I could draw from it for 10 years. Whatever amount was left due after 10 years had to be paid over the next 10 years.

In your scenario, assuming 4% interest, if you had to pay off that $61K in 5 years your payment would jump to about $1,123. If  you had 10 years to pay it off if would still be about $617.

I am by no  means the guy to ask about subject to. However I do know one strategy people have used is to get power of attorney for the mortgage. With that power of attorney you may be able to remove her ability to take more money out. If confessed judgements are legal in your state you may get here to sign one giving you power to get a judgment against her if she does take money out.

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  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Michael Hayes

    What is your plan when then bank calls the loan?

    I assume you have the funds to pay the loan off.

    If not, what will you tell the tenant when they have to move and the seller when their credit is ruined?

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  • Michael Hayes
    OP
    Investor · Memphis, TN · Member since 2015 · 369 posts · 233 votes
    9y
    Originally posted by @Bob B.:

    @Michael Hayes

    What is your plan when then bank calls the loan?

    I assume you have the funds to pay the loan off.

    If not, what will you tell the tenant when they have to move and the seller when their credit is ruined?

     The question is if structuring this deal is even possible Bob with the scenario. It is possible to take over payments and keep the loan in place but I'm asking how is the deal structured. I am inexperienced in this regard but know that it can be done. Thank you for your input.  And yes you assumed correct. I do have the funds to pay it off a few times over, but not looking to do that here.

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  • Account Closed
    Evergreen, CO · Member since 2017 · 91 posts · 22 votes
    9y
    Michael Hayes I'm very new to the world of note investing but this sounds like something that could be worked out that way. Maybe you could get a DIL (deed in lieu of foreclosure)? That might not be the right approach but I'm looping some guys into this post that can probably help. Sounds like an awesome opportunity. Best! Wayne Snell , Adam Adams , Bob Malecki
    1Reply
  • Account Closed
    Evergreen, CO · Member since 2017 · 91 posts · 22 votes
    9y
    Chris Seveney
    1Reply
  • Michael Hayes
    OP
    Investor · Memphis, TN · Member since 2015 · 369 posts · 233 votes
    9y
    Originally posted by @Account Closed:

    Michael Hayes

    I'm very new to the world of note investing but this sounds like something that could be worked out that way. Maybe you could get a DIL (deed in lieu of foreclosure)? That might not be the right approach but I'm looping some guys into this post that can probably help. Sounds like an awesome opportunity. Best!

    Wayne Snell , Adam Adams , Bob Malecki

     100% appreciate that.  Always looking to learn, grow and network.  

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Michael Hayes

    Just for clarity a HELOC is a mortgage. Some important questions you haven't answered. Perhaps they will be answered when you see the HELOC docs. What is the interest rate? Is it adjustable and how often? How long will the HELOC stay in place? Are her $200 payments just covering interest now, or is she paying down some principal?

    I suspect when you get these answers you will see this is not anywhere near as good as you might think.

    When I had a HELOC, I could draw from it for 10 years. Whatever amount was left due after 10 years had to be paid over the next 10 years.

    In your scenario, assuming 4% interest, if you had to pay off that $61K in 5 years your payment would jump to about $1,123. If  you had 10 years to pay it off if would still be about $617.

    I am by no  means the guy to ask about subject to. However I do know one strategy people have used is to get power of attorney for the mortgage. With that power of attorney you may be able to remove her ability to take more money out. If confessed judgements are legal in your state you may get here to sign one giving you power to get a judgment against her if she does take money out.

    1Reply
  • Michael Hayes
    OP
    Investor · Memphis, TN · Member since 2015 · 369 posts · 233 votes
    9y

    @Ned Carey thanks for the info.  Yes she is sending docs to me on Monday, but I needed to hear that.  Like you said, it may not be as good as it sounds so I'll need to check to make sure I'm not jumping into something terrible.  That caught my attention also with the low payments.  Last few deals I did were simple cash transactions, so not a lot of advanced structuring involved.  I'll have to update the forum.  Push comes to shove, on to the next one!

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  • Account Closed
    Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
    9y

    @Michael Hayes The only time i've taken HELOCs as Subject To deals there was already a lot of built in equity in play, and they were on the back end of the repayment schedule. So while it wasn't cashflowing at all, it was paying down the remaining principal at a very high rate of speed. Basically at a point where i could unload them reeeally quick if the loan got called. Not sure you'd be able to do that with an ARV OF $55k and a loan of $61k. As you said, if not, onto the next one! Good luck man

    1Reply
  • Michael Hayes
    OP
    Investor · Memphis, TN · Member since 2015 · 369 posts · 233 votes
    9y

    Thanks @Account Closed.  Sounding more and more like this one just may be too good to be true.  House is nice though, but that's how the game goes.  Live and learn.

    1Reply
  • Jason Dillard
    Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes
    9y

    This seller sounds motivated. What else will this seller do for you? Will she pay the loan down before you take it over? Does she have cash in her retirement account that she could lend at very low rate on another deal? Will she refinance the HELOC and buy you another 10 years of interest only? Does she have another house she could sell at a huge discount to make this worth it? Will she cover the payment for the first year?

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  • Michael Hayes
    OP
    Investor · Memphis, TN · Member since 2015 · 369 posts · 233 votes
    9y

    @Jason Dillard Exactly!  The variables that could change everything right?  Strangely enough, she became unresponsive after I asked her to send a clearer copy of the loan details so we could discuss the options.  She sent an extremely fuzzy copy where I could barely make out the monthly payment.  From that point on, never heard from again.  She may have sent further details to my sister/agent who is currently in Hawaii.  But she would have told me by now.  

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