Can I do a deal here??

Question

Hello Everyone!!!

hope you are having a good weekend.

I have come across a homeowner his property is in Foreclosure I wondered if you had any ideas as to how I could help. Here is the situation.

Bob bought the property as an investment home 2 years ago.

Property has been on the Market for about 10 weeks for $175,000

Since October Last year 3 properties have sold for between $150,000 & $197,000

Bob would be willing to take $150,000 & walk away because that’s what is owed on the mortgage.

Has had a few people look at the property but the market is slow.

He is $10,000 dollars behind in his mortgage payments. He hasn’t paid since March.
Monthly payments are $1680 Interest rate is approx $8.5%. Interest only
Taxes & insurance are escrowed into his payments; there are no other liens on the property. He pays HOA $100 Per Month

Was renting it out to his mother in law and he was subsiding some of the mortgage payments. He says got into trouble because of interest rate & tax/insurance rises. He is self employed and his business wasn’t doing very well.

Can’t re-mortgage because of bad credit

Has spoken to his lenders attorney and he is just waiting a response from them about how they want to work with this situation.

It’s a brand new property built 2 years ago. In terms of repairs he says it would only need a bit of paint to fix it up.

2 Bed 3 Bath Townhouse 13,83 sq ft. The property is part of a gated community.

When he purchased the property he took mortgages with 2 companies. He got a loan for $116,000 from one company & $33,000 from the other.

If he does sell he will need to find a place for his mother in Law and is expecting to pay around $850 Per month for her rent.

My Idea

Put the property under a 2 year option, giving myself the option to purchase the property for $150,000 which is what he owes on the property.

I would then lease-option the property to somebody else with the option to buy it after two years for maybe $170,000.

Ask for a down payment of maybe around $20,000 this would pay the mortgage arrears and put $10k in my pocket. If they purchase the property the down payment would go towards the final price of the property.

I haven’t checked out the local rents yet but since I would be giving my tenants the opportunity to purchase the property I would ask for higher rent. So I would make 10K when they enter into the agreement & a monthly profit on the rent. That was my idea what do you guys/girls think?

Also I’m thinking there could be an opportunity for me to get a further discount from the lender. What do you think?

Do you have any better suggestions?

Is my plan flawed? If so, how flawed is it?

Is it a realistic plan?

Would you do this deal or do you think I should just walk away?

All ideas/criticism welcome you can be brutally honest I can take it!!!!  :D

Christopher Gravillis · Answer

Thanks Wheatie

Jon Holdman · Answer

Yeah, I find it very useful.

Your picture can't be worse than mine. Someday I'll find a better one that doesn't involve beer and aloha shirts.

Given what you know, I would use $150K as an upper bound for any ARV (after repaired value) estimation. Maybe less, depending on what you find for other properties nearby.  Could be similar properties on the next street over are selling like hotcakes at $125K, and the only buyers on this street are ones who specifically want this street.  In which case this might sell quickly at $125K.

From what I hear, FL has really really slowed down.  But, I'm a long ways away and have no direct info.

If you determine $150K to be the ARV and you want to sell, You want to pay no more than $105K less any repairs.  That seems consistent with you friends discount of $75K.  If you want to rent it for $850, you can't pay any more than $42K if you want to make a profit.  Yes, $42K, not $142K.  People went into the wacky rental situations expecting huge appreciation.  Paying $150K and getting $850 rent means you have a HUGE monthly shortfall.  That rent won't even cover the interest, let alone everything else.  I do realize you didn't say $850 for rent.   I'm just guessing that based on what he expects to pay for Mom after she moves.

Having two notes does make it more challenging for a short sale.  If the note balances are $149K plus $10K in overdue payments and charges, then a short sale is probably the only way to get this for anything you can stand.  The lender on the first is going to want all their money, if the lender on the second is getting anything.  The second's not going to want to walk away empty handed.  It doesn't look like anything over $90-100K is a good deal (at best), so you're going to have to futz around with both to sort something out.

There seem to be two ways to avoid the tax bill associated with the forgiven debt.  One is to declare bankruptcy.  The other is to prove to the IRS you're insolvent.

I'd recommend you do some reading on short sales before approaching the lenders.  They aren't going to be interested in any discussion with you.  You need to understand the process cold, and have all the paperwork in place when you start talking to them.  Do some looking around here, and you'll find the basic process.

BTW, finding Mom another place to live is not your problem. Don't let it become your problem.  If this place doesn't work out, move on.  There are LOTs more fish in the sea.  Lots of people bought into deals just like this thinking there was no limit to the appreciation.  10% appreciation means a $150K condo is going to be worth $1.2M in 20 years.  That's just insane!

Jon

Christopher Gravillis · Answer

I love this forum!!!!

Thanks for the response Wheatie. I will get round to updating my profile I might even put on a picture if I can find one that will do me justice!!  8)

I'm working Hillsborough County, Florida area. When I said only 3 properties I meant 3 properties on that particular street. All of these properties were built around the same time only 2 years ago all of them are very similar in terms of size number of rooms etc and apparently in very good condition & part of a housing association.

I will do more research on the area then try & get in touch with his 
lenders. He says that he has one mortgage with a Lender for $116K and another one for $33K. Would this make much difference to how I approach them? My initial thought is to go to both of them, explain the situation & find out how/if they would be willing to work with me.

A freind of mine said I should aim for a discount of $75K or walk away.

If a homeowner does go down this route; The amount of debt that is cancelled by the short sale will be subject to federal income tax. So how would you overcome this objection when speaking to the homeowner? Espeacially as this guy has no equity any way & can't benefit financially from the sale of the house. So apart from keeping foreclosure off his record how does he benefit? Espeacially if he is just going to be left with a big tax bill.

Couldnt he just let the house be foreclosed, forget about his old mortgage and not face a big tax bill?

Jon Holdman · Answer

Sounds like it may be a good prospect for a short sale.  That doesn't mean its a good deal.

You should update your profile with your location.  Laws vary widely for dealing with folks in foreclosure.  You'll need to know your local laws to do any sort of deal with this person.

If only three properties have sold in the last year, I'd say the market is VERY slow.  That seems like a small number for most areas.  Does that just refer to the specific project?  You should look at the larger area to get a better idea of the number of sales and prices.  A few calls to realtors might be appropriate.  Try ones that have nearby listings.  Are you local to this area?  Have you driven around?  Are there lots of properties for sale or for rent?

You might try http://www.rentometer.com/ for rents.  Not sure how accurate it is, but might be a starting point.  Look at rental ads in the local paper, either online or hardcopy.  Drive around and look for "for rent" signs and call them.  Call nearby apartment complexes and ask about their rent and amenities.

Figure out your exit strategy, figure out the real market for sales or rentals, then back into what you can afford to pay.

Another option is to keep an eye on it and see what happens at the auction.  Assuming it goes back to the lender, buy it from them as a REO.

Jon

Christopher Gravillis · Answer

Thanks for the quick response All Cash. I appreciate the feedback.

I have just been looking at my notes & doing a bit more research & maybe I’m clutching at straws but could this be a potential Short Sale candidate?

•	The Borrower’s financial condition is poor 
•	The property is in foreclosure 
•	There is not much equity in the property 
•	Property prices in the area have shown a 3.7% dip
•	A very similar property in the local area sold for just $149,900 in July.

What do you think? Could it be worth spending the time/effort on?

Also I still can’t find rental values can anybody suggest a good website(s)??

Frank Adams · Answer

I don't see a "deal" here. There are probably a million or so people/properties in the same/similar numbers, boat. Right now there's an immediate problem of where to come up with the $10K to stop the foreclosure.

Next you don't know how much rent it will bring, is it close to being enough to feed this $1800/month ALLIGATOR?

You say you'll find a lessee/buyer with $20K CASH. How many of those do you think are walking around? Trust me, people in that situation have their pick of millions of deals right now.

I'd pass on this one, there's lots of marginal deals out there, just pass them by.

all cash