Selling distressed property with substantial equity

18 Replies

How should I approach this deal to mazimize my profit? Should I do a "subject to?" Should I buy the property to bring it current and sale it there after? I really need advice. Thanks in advance.

Is the home bank owned or is it privately owned?  

If bank owned you will have to purchase it or do a double close if you have a cash buyer ready to go.

If privately owned you could ask for owner finance and try to flip without making any repairs.  If the deal is good enough you might be able to find another investor willing to take the project on. 

Good luck

@Wesley W.  What are you looking for and what are your resources? If you can cash flow on the property, are you willing to buy it and also have the means to rehab to make it rent ready? Are you looking for cash or cash-flow? If cash, I would say to put it under contract and then wholesale it. If cash-flow, buy and hold it. 

How much equity are we talking about here? Is there enough for seller-financing? If so, have them carry the note and agree to terms that will be favorable to both of you.

Thanks,

George Makakaufaki

I think you need to explain more of the details before anyone can give you a more thorough analysis of recommendation. Include some real numbers.

The property is bank owned. At this point I want to generate capital from this deal. It'

Subject to and other forms of creative finance are not an option for bank owned properties.

Get it under contract (you will need earnest money) and wholesale it to an investor.  You will probably need to double close (banks usually won't allow assignments) so you will need a transactional lender.

Is it listed on the MLS? If so can you get it under contract at a discount off the listed price? Because offering investors a deal right off the MLS at the MLS price (or higher) is a sure way to lose credibility.

The property is bank owned. At this point I want to generate capital from this deal. It's a rental property because of its location.

The property is actually owned by a mortgage lender. The property's equity is just a bit greater that half the original amount. I've got it under contract as a "subject to" deal. But I'm reconsidering that. I'm a newbie and trying to finish my first deal. I really appreciate your advice on this? Let me know. I want to market it to my buyers list. But how do I acct for the 13 past due mortgage payments on this deal. I have access to some personal capital to bring it current, but not too sure how to ensure my equitable rights on the deal. I'm in houston Texas and soon will close my first deal. Thanks too good advice

@Wesley W.   that last post really doesn't make sense.

If this property has been foreclosed on by the "mortgage lender" then it is an REO. Neither subject to nor past due payments make any sense because the foreclosure would have wiped out the mortgage.

Since you mention both of those things I suspect the property is in the foreclosure process but has not yet actually been foreclosed on.  And you're dealing with the owner.  In that case both subject to and the back payments make sense. 

One case which might make sense of all of this was if a second mortgage foreclosed and took possession of the property.  The first mortgage would still be in effect and there may be back payments that would have to be made up in order to bring the loan current.  If that's the case then the first is very likely somewhere in the process of foreclosure.  If you were to buy this house from the lender that owns it now you could easily lose 100% of your investment if the first mortgage forecloses.

What's the actual situation here?

Thanks guys for trying to process this with me with the details I'm providing.  The property is a month away from foreclosure and the mortgage lender is simply wanting the past due mortgage paid or have the property sold at auctioned.  The home owner has no interest in retaining the property nor has any ability to bring the loan current.  Essentially all he hopes to do is not have a foreclosure on his credit.  I obtained a contract with as a "subject to".  Its about $12k past due and has some minor work needed ($4-5K).  The property market value around $98K. It can generate a rental cash flow ($200-400 gestimating). Let me know how I can best do this deal. Thanks for ongoing feedback and questions.

Wesley do you have the Pay-off amount from the lender?Must be in writing from the lender or attorney.

Originally posted by @Ronnie Sparrow:

Wesley do you have the Pay-off amount from the lender?Must be in writing from the lender or attorney.

Yes I do have a off amount and a reinstatement figure.  I've since learned its a bank owned property and not a mortgage broker company.  Its been submitted to a collections service company. Its a little more than $12K delinquent. Should I modify the contract from a "subject to" to something different?  I want to simply create capital at this early phase of  my experience.  I appreciate your advice,  

Originally posted by @George Makakaufaki:

@Wesley W. What are you looking for and what are your resources? If you can cash flow on the property, are you willing to buy it and also have the means to rehab to make it rent ready? Are you looking for cash or cash-flow? If cash, I would say to put it under contract and then wholesale it. If cash-flow, buy and hold it. 

How much equity are we talking about here? Is there enough for seller-financing? If so, have them carry the note and agree to terms that will be favorable to both of you.

Thanks,

George Makakaufaki

 Thanks George; I want to get cash at this early phase of wholesaling and sell it to an investor. Equity is less than $100K. This homeowner wants nothing to do with the property and doesn't have the income to finance the note.  

Well if its bank owned the former owner (probably) has no claim at all.  The payoff is irrelevant.  A contract with the former owner is irrelevant and worthless.   Its not in foreclosure - its past that stage.  Very confusing situation.  Unless you can sort out who really owns this property this deal is going nowhere.  The only way I can make sense of what you're providing is if there were two loans and a second foreclosed already and took possession and the first is now in the process of foreclosing.

The property is bank owned. At this point I want to generate capital from this deal.

Jon- As far as I know and from what the title company has stated there are no other loans or mortgages for this property. why do you say it's headed nowhere. Let me know. Thanks

The property is bank owned. At this point I want to generate capital from this deal.

Jon- As far as I know and from what the title company has stated there are no other loans or mortgages for this property. why do you say it's headed nowhere. Let me know. Thanks

There is $55k in equity and the home market value around $90k.

Wesley, stop.  It is either bank owned, OR it is a month away from foreclosure auction.....which is it?  Sounds like it is a month away from foreclosure, you say there are $12k in arrears payments, to bring the loan current.  What is the principal balance left on the loan?  If it hasn't gone to the foreclosure auction yet, stop calling it bank owned.                                                                                                                                                                                                                                                       

Originally posted by @Wayne Brooks:

Wesley, stop.  It is either bank owned, OR it is a month away from foreclosure auction.....which is it?  Sounds like it is a month away from foreclosure, you say there are $12k in arrears payments, to bring the loan current.  What is the principal balance left on the loan?  If it hasn't gone to the foreclosure auction yet, stop calling it bank owned.                                                                                                                                                                                                                                                       

 The principal balance on the loan is $58,690. It is slated for sale at auction due to past due payments. 

That means the bank doesn't own it if it's going to auction, it's in foreclosure, there is no seller financing at this point.

If the bank did own it, they must attempt to obtain the market value as the equity is still due the past owner, if they can't get that they will come down. The property will sell for what it's worth, whatever that is, the bank isn't going to allow thousands in equity to be obtained by any buyer. A few grand maybe, but not tens of thousands. Your valuation is questionable from what you've stated.

BTW, a seller financed note can be sold in whole or in part after it is made to generate cash to the lender, sometimes combinations can be found that are acceptable to a seller, but not in this case dealing with a bank. Good luck. :)

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