Buying a motgage from a private lender... owner willing to deed in lieu as well...need help please

2 Replies

I was contacted by a guy that holds the mortgage on a small 2 bedroom house in my area.

He is wanting to sell the mortgage at considerable discount. We have talked back and forth and the guy seems to have gotten burned pretty bad by a business partner (the owner of the home) and the mortgage holder just wants out.

The home is worth maybe $35-45K I do not know the extent of repairs needed yet but it does have a tenant in place now. He is wanting to get $7-8K for the note.

After several emails I have also found out that the owner is willing to due a "deed in lieu" and walk away for $2500.

I know I need to do a title search on the property and it does have one prior tax cert for last year (2013) for $690. 

The owner does have a tenant in place in the home but it is a month-to-month so should be fairly easy to get them out if the end buyer does not want to keep them in place.

How would I go about structuring this deal? Would I pay off the owner for the deed and have him sign it over to the mortgage holder and then have him sign it over to me?

Would my title company be the best bet to get this all done?

This is not a "home run" $20K wholesale deal but if I can make $2500 and help everyone involved, that works for me. It would still give an investor a dirt cheap buy and hold property, and I can use the money to build my wholesale business.

Thanks in advance for the advice.

I am guessing nobody here, beside you, wants to spend any dollars on wrapping this all up.  The relationship between the Mortgagee and Property Owner is a little bit of a concern, just have to keep everyone honest.  It is not clear how you learned of the DIL idea.  

Here are general steps:
1.  Obtain and deliver a contract to purchase the Mortgage and Note.  You will need about 2 weeks for due diligence.  I would look to ensure the PSA talks about exclusive rights to the transaction.  I would want a warrant from the Seller/Mortgage the lien is a valid first lien.  Perhaps you all are close enough to meet and exchange documents, if not figure out how you want to clear the trade.  There is no Earnest Deposit.  Close, fund and done, until then you can walk away with no cost to you except DD costs.  
2.  Once contract with the Mortgagee is setup order your services:  Owner & Encumbrance title report - 1 owner ($100) and a Broker Price Opinion ($100).  Those will take about 3 to 5 days to get back.  
3. Make arrangements to get copies of file and servicing records.  
4.  Review.
5.  I would have a little bit of a concern the documents are a bit DIY'ish.  So make sure you look over the Mortgage and Note.  Mortgage should be of record (verify with title report).  Ideally there is a Title Policy out there somewhere too.  Yours would be the lender's policy.  
6.  Verify property insurance - property is occupied so this should be a landlord policy.  If there is no policy, you should plan to have one on the day of closing.
7.  Verify the balance and payment applications.  
8.  Reconcile the vendor reports when they come back.  A good title report will give you copies of all liens attached to property.  Hopefully these are minimal.  Check your time on the tax certificate before they can send it to sale.  Any other liens on title will affect your DIL.  More than likely they would need to be paid to be removed.  BPO is property value, a rather straight forward idea I am presuming.  Make sure you agree with comps and end value for your action plan.
9.  Adjust price and close Mortgage and Note purchase.  Record Assignment of Mortgage.  Collect physical file. 
10.  Have borrower send you a letter (formally) asking for a DIL.  (not other way around)
11.  Respond with DIL contract and paperwork.  You can likely get an interior inspection here if you allow it to be planned properly.  Landlord (Deed owner) likely just has to give proper notice to tenant.  You will want a copy of the lease/rental agreement if there is one.  If there is no lease then I would get the tenant to execute an affidavit to the same (not landlord).   You just don't want a lease coming out from the shadows once you have title.  
12.  If all is in order, close on DIL.  Record deed. At this stage you would need your own property insurance (different than Mortgagee property insurance) and you would likely want to get title insurance to protect title, that would be an owner policy now.

Now you are the property owner with a tenant.

In this trade you want to deal with each party on their own in their own segment of time.  Be careful not to jump ahead dealing with a party you do not yet have a right or interest to deal with that could cause problems. Be mindful of all parties working against you.

WOW...Thank you so much for this detailed explanation of the steps! Although I think I am more scared now than I was before your reply...lol

 How I came about the DIL was when speaking with the note holder he contacted the deed holder to see if I could get in the house ( note  holder did not know house had been rented again). The deed holder actually said he would be willing to walk away "for say $2500"..those are his exact words.

The note holder want is wanting $7-8K to sell the mortgage so that would put me owning the home for less than $10K not counting title work and the back taxes.

The home is not worth a huge amount but if I could find a buyer and make a couple grand i would be happy...but this is starting to sound like a HUGE amount of work with a lot of moving parts that could all fall apart.

Ideally I would like to find a partner with experience in a deal like this and split 50/50.

Thanks again for your detailed response, it really shed some light on this deal.