Seller Said "You Can Have It For Free" ... ok whats the catch?

40 Replies

Yesterday morning (Dec 16th 2015) I received a voicemail message from a guy who received one of my postcards that asked to buy his vacant property in Pittsburgh Pennsylvania. After work, I was able to catch up with the owner over the phone. I asked him the typical questions and he answers saying that its vacant, 4 bedrooms, 2 baths, he used to live there and also told me about how much the next door neighbor was such a B-word. In general he explained how much of a headache the property is for him. Since he lives hours away and is 80+ years old he tells me that he can no longer afford to waste time and money maintaining or responding to complaints. He informs me that he did not think he owned the property since he filed for bankruptcy 6 years ago. However, property records and citation letters clear identify him as the owner. 

After he tells me more about his past life in the property and how the neighbors kid broke in to steal all of his guns, equipment and a safe; i asked him the million dollar question. HOW MUCH DO YOU WANT FOR THE PROPERTY?. He said "I dont want anything, I just want to be done with it". I thought I was hearing him wrong... I asked again SORRY I DONT THINK I HEARD YOU RIGHT, HOW MUCH? He confirmed saying " I don't want a nickle for it, you can have it" I was blown away. We talked for about an hour while I would ask him again about the price and he confirmed the same thing "Nothing". 

As you can imagine i was excited and surely knew this may be to good to be true. So I assured him I would find out the next day about any liens or foreclosures on the property. Today, I had a friend on mine do a title search for the property. There were no foreclosures but there are multiple liens summing up to around 20K.   

Property Info: 4 beds, 2 baths, 1600 sqft, 

The property ARV: ~114,000

Delinquent Taxes: ~20,000

Question 1 - Is there any way to get property transferred to my name without paying the taxes upfront? You know, gaining title, then having a payment plan to pay off taxes per month and maybe balloon payment after rehab and pulling equity?

Question 2 - I found this property because I am looking to wholesale, but I am keeping my eye out for home runs like this. If I get this property for free without paying taxes up front I will do rehab and flip myself. If not then i will attempt to wholesale for 25k to an investor. Does anyone have any experience wholesaling a property with tax liens? 

I have not inspected the property to determine the repair cost. Will do that tomorrow. 

Any advice on this would be helpful and much appreciated. 

Pittsburgh, Pennsylvania, PA, Tax Liens, Wholesale, 

@Jacob Howell sounds like a solid deal depending on how much work needs done to the property.

First go see the property, get a rehab budget put together because it may or may not be worth the money.

2nd thing you would need to do is get it under contract, after that you would start title on it and the title company will tell you how many liens and judgements are on the property.

Make sure you have multiple outs in your contract (IE Inspection, Title), don't put a ton of hand money down either because there is a good chance you will lose it.

Once you have it under contract and know how much you will need to close then you can start looking for buyers or buy it your self (I always recommend this option if you can).

Good luck and feel free to reach out if you have any questions for me.

Originally posted by @Jacob Howell :
@Wayne Brooks

Hey Wayne, 

Thank you for the response. You are right, there may be a mortgage but how should I find  out if there is? Have you dealt with a scenario such as this? 

 Do an O&E report from a place like ProTitleUSA they run under a $100, in the title look for chain of ownership on the note and title. Contact the current recorded owner. If the guy that you spoke to just quit claims it to you, note owner will have the right to exercise due on sale clause and ask for full unpaid balance and if it is not paid then they can foreclose on the property and take it back. ( Someone correct me if i'm wrong on FC )

Or, you can just go to your local title company and talk to them. Most of the time they will give you few minutes of their time for free.

I'm envisioning a horse with a big bow tied around it.  Obviously you will want to do your due diligence on the property, and I would go through a title company and collect a warranty deed and not a quit-claim deed, but some people just want to alleviate themselves of hassles at their own expense and your gain.  Don't look this gift horse in the mouth!

I agree with Wayne - there is a mortgage somewhere, unless this place needs $100k in rehab to be worth $114k ARV. BK in Pennsylvania isn't going to leave that kind of equity in place; the house would/should have been sold to access all that equity.

My hunch is that if you do a thorough title search you are going to find there's negative equity in this place by the time you add in the delinquent taxes. Your friend that did the title search - does he offer title insurance and is part of/owns a title agency? If you do anything, you better make sure you get title insurance, or you could be the next bankruptcy!

It's certainly possible that there's this big box of cash sitting there - nothing is impossible - but I find this quite unlikely. The guy was cognizant enough to file for bankruptcy, so he probably knows something you don't, i.e. that there wasn't enough equity to satisfy the mortgage and get around the federal bankruptcy laws for homestead. 

Originally posted by @Mark Nelson :

That depends on which chapter of bankruptcy he filed previously.

 Both chpt 11 & 13 have a procedure to extract the real property from the proceedings, but it's done by the mortgage companies to protect THEIR equity.  Subsequent to the BK, they foreclose.

A motion for "adequate protection" protects the mortgage holder's interest.

W.C. Fields quote comes to mind  " theres a sucker born every minute"    Ask yourself why is he giving it away ?     Then dig deep to find out 

Agree with Wayne and others on the existence of a mortgage.  Also I would venture to say that $20k in back taxes probably means the property is a candidate for a tax foreclosure.  I would get a bit more detail from the friend who looked up title and see what the story is there.  If you can get into a purchase with the guy then I would at least cure those back taxes which might be potential tax sales.  

As to the friend who looked up title, is this something he does professionally or did he just try and pull an abstract of title himself or even less, he just looked around the recorder's website.  Moral of the story, the title look up you are relying on is suspect.

The Seller and you can choose to buy/sell the property while not curing the taxes.  Simply put that in the contract.  You are not purchasing clear and marketable title and that is your option.  See my note above about attending to all or some of the taxes.

As far as the potential of an existing mortgage.  It is unfortunately very common for folks to believe a BK wiped out their mortgage.  So the owner may not be the best bet to rely on in that matter.  You can go to Pacer.gov and pull the BK file and look into the BK plan to see what was done with the property.  

If there is an open mortgage on title, you still might be OK but you have an uphill battle to reform the deed.  If the note has run past its collection statue according to the state of the subject property you can talk to an attorney to file to reform the deed and quietly remove the encumbrance.  If there is not note to collect on, there can be no instrument securing the note.  The BK was 6 years ago so that time knocks on the door of many statue run times depending on the state.  

That said, typically a Mortgagee will wait through the automatic stay and look for payments on the account on-going.  The BK plan will deal with catching up arrears due.  A future default (post BK petition) would still allow the Mortgagee to ask for relief from the stay and to pursue foreclosure.  

The deal warrants more investigation and you may have a way to work through it.  The key here is I would spend the money on a formal title report from a company not a friend and pull down the BK file and see what you can understand from it.  You will eventually want to bounce all this off a RE attorney so you ensure you are safe and either will get clear title or you can clean title up after acquisition.  

@Jacob Howell   Generelly you cannot set up a monthly payment plan for back tax's.

In most states you can take title to the property subject to back tax's , However in Washington you cannot.. they will not record a transfer deed without all tax's being current. This really fouled up a bunch of the pre foreclosure buyers  LOL.. who did not have deep pockets and though they had deals only to find out they needed 20k to transfer title.

great advice here.. but really all you need to do before you do anything is simply pay for a title commitment.. Not sure what they cost in that market a few hundred bucks and you will know what you got.. We call them preliminary title reports out our way .. I think your way they call them title commitments.

@Ian Hoover   I think this seller just wants to give him the property so the normal wholesaler weasel clauses you boys like you use is not necessary.. 

@Jacob Howell  lastly I bet this old bird has gotten many yellow letters and has told the exact same story to numerous people.. But let us know what you find out.

It can happen.. I am working on one in Oregon right now.. it was  farily big land owner who had working gravel extraction pits there is I think 6 or 7 parcels.. but he has all sorts of IRS and state of ORegon liens.. ( property taxs are minimal) but he is willing to just deed it to us and if we make some money we pay him on the back end.. and only a little bit.. Older dude just wants the stuff gone and someone to help with the leg work.. which there is money to be made in the negotiation of debt... Suggest you pick up Rick Harmons  study material.

@Jay Hinrichs Do I have any study materials? Thanks for the plug but I'm about as slow as congress trying to pass new tax reform laws.

Trying to advise a BP poster with an opportunity in hand is frustrating.

Biggest problem: lack of deal flow for poster translates into attachment to the opportunity.

Next biggest challenge is lack of sufficient information to make an intelligent decision.

Sure, I'd take the deal off the market and tie it up, however there are many hidden land mines and fresh cow pies along the way.

It is possible to transfer title when record owner has filed BK 13 by debtor filing a petition for voluntary dismissal and getting an order for same. Typical turn around time is around two weeks without holiday delays. Thus would address the power to transfer.

However, we don't know anything about the rest of the record debt. Mortgage(s), state and/or Federal tax liens? Other title tidbits?

Just how would a new owner propose to benefit from ownership or control? 

@Rick H.   I will bet dollars to donuts this old gentlemen loves telling this same story to everyone who contacts him... sometimes these folks are just lonely and want to talk.

I have had a good year of working through hairy deals... the more hair the better !!!

Actually @Jay Hinrichs I don't do wholesale deals, when I say I am going to buy a property for cash and as is I buy it myself. However being an agent I know the process in doing a wholesale deal and if @Jacob Howell does not have the funds to close on the property (because nothing is free) then he will need those out clauses if he can't line up a buyer for the property or line up private or hard money financing himself.

The problem with this transaction is Jacob does not know how much the guy owes in back taxes and if there are any other liens on the property so it will be tough for him to know if it is a good deal or not until he gets the title work done.

I hope this gives you some clarification, I do agree that I am not a fan of the "weasel" ways of wholesalers but I know a bunch of wholesalers and only a few of them are weasels lol. 

My suggestion is!

-If you haven't rehab any property before, don't even think about it with this one ( meaning you don't know your numbers)

They are so many moving parts, if you don't have a clue how to do due diligence, you'll be better wholesaling.

Get it under contract for 1$ with an earnest money of 25 cents. ( make sure your contract allows you to walk out if there are any issues), estimate repair value and present the numbers using the bigger pockets calculator .

Present the paper work to and expert rehabers and and let them make you an offert

Jacob Howell, its great that you had the forethought to seek counsel before jumping in first with both feet. If you find there is a free and clear mortgage on the property, let me know if you need financing and I will help point you in the right direction. It sounds like this could be a great deal; if so, don't let someone else steal your thunder. But first, do all the due diligence necessary to establish whether it's truly a deal or a bad apple. If it's a bad apple, it was never meant to be anyway; but then if it's a gift, why give it away?

Dear Jacob,

This is SUCH an interesting discussion!!!  Not just the initial "jaw dropping" proposal by the seller, but also all of the wonderful comments above!!!  It's been a real eye-opener for me, in some ways.

I agree with any/and all the details posted by members who feel that further research/title work needs to be done!  

In addition, I might have a tiny bit of contribution that could help:

All counties in Pennsylvania will follow State Law, with regards to tax delinquent properties.  However, each county may have their own way of "interpreting" the law and/or applying the law, and/or chosen methods by which they apply the law.  

Although you are in Pittsburgh, the seller is 3-hours from his property, so I don't know in which PA county it's located.

If he thought he "lost" the property 6 years ago (because of bankruptcy), then he probably would not have paid any property taxes since then.  SIX years is getting dangerously close, in most states, to a property being offered up at a "tax deed auction".  

BECAUSE OF THIS, before proceeding with ANY commitment to obtain the property directly from the owner, please consider these suggestions:

-- $20k in miscellaneous liens -- because of the seller's story about his neighbor, I'm guessing that at least some of the liens are from "code enforcement" for nuisances such us overgrowth, etc.  BE SURE to learn what ALL of these liens are for, and to whom!!!!  Why?  Because if you were to purchase this property at a tax deed auction instead (soon?), all NON-governmental liens would be wiped out (including mortgages with for-profit companies, private individuals, etc., or liens with companies where the property's equity was used as collateral).  The liens that would continue "clinging" to the property after purchasing at a Tax Deed Auction are government-related liens (i.e. code enforcement fines, etc.)  Contact me if you need further clarification these.

-- $20k in back taxes -- they'll need to be paid, no matter what, eventually.  However, since it may have been 6 years since they have been addressed, you should get on top of that right away!!!  If it were me, I would contact that particular county ASAP, and learn the exact status of the property regarding it's delinquency status?  (i.e.  is it due to be auctioned soon?  has it already been auctioned, yet there was no bid?  etc.)  Then ask any additional questions you deem fitting, for your situation (i.e.  Let's say that they tell you it is scheduled to go to auction in July 2016, unless back taxes are paid in full.  Perhaps your next question could be, "If I paid just the OLDEST year [or two] of back taxes, would it keep it from going to auction?")  I thing THIS is what you were looking for, in order to "flip" it yourself, right?  That would "buy you some time" and free up your current funds to spend on rehab, so that you could sell it for profit (out of which the remaining taxes would be paid).

This COULD be an awesome opportunity!!!  ...and I hope that's exactly how it turns out for you!!!

It could also be an excitement-filled "dud" -- which I hope that it isn't.

YOUR BEST BET is to really figure out WHICH ONE it ACTUALLY is, before committing!!

Currently, I'm focused on Florida.  But I live a short 2 hours from you, in Ohio.  Therefore, I have also dabbled in both Ohio & Pennsylvania...  Perhaps in the future, we'll attend the same BP meetup, and/or be able to mutually be each other's "adviser", or perhaps even work on a deal together!

Looking Forward!!!!!!

Cheryl

This is where you bring in a good title company. Before they issue title insurance, they will tell you what needs to be paid in order to acquire clear title to the property. Federal taxes will often subordinate to a the lender of a new buyer. State taxes might be happy to do the same. I imagine that varies considerably by jurisdiction. But you are shooting in the dark if you don't get a full title report and see what they are requiring. That should also answer the question of whether or not there is a mortgage out there that still has a lien against the property. Also the post about pulling the BK info from PACER is a very good idea. It is relatively cheap to get those if I remember right.  You should be able to see everything that was included in the BK with those records.

I had a short sale one time that I had to have a tax lien (around $30,000) discharged from the property.  The taxes belong to the owner but it is attached to the property.  File a Form 14135 with your local IRS office.  It is about 3 pages that need to be filled out with the info about the property, the owner, and who the buyer is.  The owner has to sign it, so you make an agreement with him that as soon as you sell the property you will take care of those taxes.  Otherwise, I don't think he will sign anything. Once it is filled out and signed you can fax it to your local agent and they will likely approve the sale without having to pay upfront.  At least, with my short sale, that was what happened.  Hope this helps. 

Even if this turns out to be a deal not worth doing, look at it as a learning experience. You will gain experience in investigating titles, running numbers and can put your work flows into action so that when a real deal comes around you can be sure of knowing the correct steps to take.

A fellow PGH! Seems to be homes like this all over the place. Where is this property located at, if you don't mind me asking. I'm a mailman by day, budding REI by night, and I've delivered countless certified letters for unpaid taxes on properties up and down the old Steel Valley. Everyone seems to have that "filed for bankruptcy / it was my deceased mother's home / I don't want that headache no more" home around here.

Definitely do your Due Diligence, follow the breadcrumbs, and crunch the numbers hard. 

I've got a few homes vacant on my own mail route that couldn't make me a dime even if they gave them to me for free to flip. Sad to see them go though, but it's true

Originally posted by @Cheryl Bolognese :

...

All counties in Pennsylvania will follow State Law, with regards to tax delinquent properties.  ...

-- $20k in miscellaneous liens -- because of the seller's story about his neighbor, I'm guessing that at least some of the liens are from "code enforcement" for nuisances such us overgrowth, etc.  BE SURE to learn what ALL of these liens are for, and to whom!!!!  Why?  Because if you were to purchase this property at a tax deed auction instead (soon?), all NON-governmental liens would be wiped out (including mortgages with for-profit companies, private individuals, etc., or liens with companies where the property's equity was used as collateral).  The liens that would continue "clinging" to the property after purchasing at a Tax Deed Auction are government-related liens (i.e. code enforcement fines, etc.)  Contact me if you need further clarification these.

...

The part about being familiar with the state law in PA for tax sales is good advice, but then it is followed with info that is probably not good advice for the tax deed sale in PA - because there are tax deed sales in PA where the non-government liens also survive the tax deed sale. You can look up the PA law for tax deed sales and within that read up on "upset sales". Perhaps my esteemed BP colleague @David Krulac will chime in to confirm / expand on this ...