Scenario: My neighbors moved to another state and abandoned their home, they stopped paying the mortgage about 6 mo ago so that they could move on. The house is underwater with two mortgages to the tune of about $160k, which is about $20k above the current market value and about $5k behind. The property is distressed, but is mostly cosmetic, dirt and some deferred maintenance, $10k to $20k would make it highly salable if I could acquire the property at a discount or even at all. I am still in contact with my neighbor who is willing to work with me, and I have the keys to the house with permissible access. The primary mortgage is $140k, held by Seterus and is not assumable, I'm not sure if they would short sale for enough of a discount to be able to do anything. I though about trying to get the note, but have yet to call seterus, I have heard they are difficult to work with and was hoping to find someone with a resource there. Ditech holds the 2nd lein and may be willing to deal if I owned the 1st and told them I was foreclosing. My neighbors would deed in lieu if I held the note. The market is Norwood Young America, MN, rental is not strong, but contract for deed would work very well. Any thoughts on how to approach this deal, or resources that I could leverage to get there?
Only way I can see this working is if you try to structure a short sale. Because the property isn't too far under water I wouldn't be too optimistic about this happening though. I have never been able to make a short sale work so I gave up on them a while ago.
It could be a year before it goes through the process but if they won't take a short sale your next bet may be to show up at the Sherrif's sale and hope the lenders don't bid their loan amount. It can go either way with two loans, sometimes the second loan will buyout the first but if the property is underwater the second lender may let it go and lose their loan. If there is enough upside this may work. You are at a distinct advantage knowing the condition of the house, others won't be able to enter the property.
I don't see why you would want to but you could try to buy it on CD however the seller isn't likely to sell it below their loan amount and you would likely have to catchup the loan payments to make this work. Sure it would allow off balance sheet financing but if the rental market isn't strong it may not be enough to make it work. You would also be agreeing to purchase a home that is under water so that is something you would have to overcome.
From what you mention there doesn't seem to be enough upside in this. Would seem that your purchase price would have to be around $100k to make anything on this and I am not sure how realistic that would be if the house doesn't need many repairs. You will be competing with non-investors to purchase this who are just looking on a house to move into. If the house is financeable in the current condition you don't have a competitive advantage.
Personally I am waiting on a house to hit the market which was a similar deal. I know the guy letting it go, it wasn't really underwater but he would have needed cash to close. The property hit the Sherriff's sale, redemption period expired, and it is now REO. Waiting for it to hit the market to try to swing a deal. May contact the bank soon but it isn't a normal cash deal rehab which is why I am not jumping through hoops to make it work.
You would be much better off spending time on deals that are more doable.
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