Okay so here's my situation… I have a lead I made an offer on which was refused (not surprised). Here's the numbers.

ARV: $125,000

Repairs: $20,000

Seller Asking Price: $85,000

Seller Owes: $76,000

My Offer(which was refused): $52,500

I don't see anyway to wholesale this property as the seller owes about 60% ARV before 20K in repairs, but the seller is VERY motivated to sell and is willing to do seller financing for the cost of the existing loan. My question is this, i'm not the most familiar with "subject to" deals. Can someone enlighten me on turning this situation into a good deal? I know it can be done.

Thanks in Advance!

Did he give you a counter to your 52,500 or is he adamant about the 85,000.  What is his situation that makes him so motivated to sale?

I think you're technically looking at an AITD at $85,000. Are you sure the deal doesn't work at $76,000 in your market? Even if you could structure an AITD, your buyer pool of people comfortable with that type of deal will diminish. 

Ask him if he absolutely has to have money out of this deal or does it work for him to just get it out of his name? This will help determine if he is truly motivated vs just saying he is motivated. 

Also if he expect nothing out of the deal a short sale (bank accepts less than owed as payment in full) is a possibility. 

As already mentioned the $76K price may work for someone if it comes with owner financing.

My top offer cashing the seller out, assuming your numbers are correct, is $78K. I could wholesale it for probably $5K at that price. If I bought it subject to, assuming he has a 5% loan, I could pay $80-$81K and still wholesale it for $5K.

But I'm not in your market and my buyers don't buy where you are.

As for his asking price, every time a seller tells me what they want, I think about what I want; and that is to wake up and find a brand new high end sports car sitting in the 5 car garage of my 5,000 sq/ft house with a large in-ground swimming pool (I don't really want any of that, but it is just to prove a point). What we want and what we get/have are typically two very different things. Forget about what the seller wants. Acknowledge that he told you, but then tell him what you'll give him and justify why the house can't afford to pay him any more.

I really appreciate all the feedback everyone. There was no counter offer but I had talked to the seller after I made my initial offer. The seller is willing to let me take the home for what she owes (76k). But with 20k in repairs that puts my end buyer at 96k on a 125k ARV Property. I wouldn't consider that a smoking hot deal, but maybe doable? Any additional thoughts?

Additional Info... The seller is a little behind on payments, but has a loan payoff of roughly 76k plus or minus a few hundred bucks. She is still allowed to sell the property as llong as the loan payoff is met at closing. The sellers motivation is very high and willing to give me the property at the cost of the loan payoff, whether that be through a traditional wholesale deal or a subject to

Here's so updated information…

Seller's payoff is at $79,113 with $5,907 needed to bring the mortgage current. Again, the ARV of the property sits around $125,000. Needs $20,000 in repairs/rehab costs. Seller is willing to do a mortgage wrap, but how do I go about doing the wrap? Do I have to contact the bank and work that out with them or does the seller have any control over this? The property gets listed for sale from the bank on October 23rd so I have a little bit of time to work this out. This will be my first wholesale deal and I feel like I'm experiencing everything that could possibly go wrong when wholesaling, yet I still see dollar signs because I have a VERY strongly motivated seller.

Here's additional questions,

1. Am on the right path with the way I am pursuing this deal? The house doesn't have the equity for a wholesale in my market. A "Subject To" or Loan "Wrap" is the the only option I see. 

2. To do a loan wrap do I need to work that out through the bank or through the seller as I will be purchasing the property at the loan payoff price? 

3. For my exit strategy… I will also seller finance this property to a fix and flip investor or to a homeowner looking for a property in need of some repairs. 

Any more insight from the BP community would be awesome as I feel a little lost on where to go from here!!!

What do you mean by "the property gets listed for sale from the bank"?  Seems like you have left out something important.  The only way "the bank" can offer it for sale is if the foreclosure has been completed, and they got it back at auction.  If you buy sub2, and resell with owner(you) financing...what do you do if the bank calls the loan due?

Your purchase of the property is not a loan wrap situation.  You say the seller will sell for loan balance.  So you are taking title to the property subject to the existing debt with no payment to the seller.  There is nothing to wrap.  You get a deed, bring the loan current make payments until you re-sell.

You do not negotiate a subject-to purchase with the bank.  The answer from any bank should and would be "no".  The transfer violates the due-on-sale clause in almost every mortgage.  

Do you have the cash to bring the loan current asap?  Do you have the cash for repairs to make it ready for re-sale?

You'll need a title report to see what else is going on with debt against the property. Are the property taxes current?  Are there any liens against the owner?  I suggest getting an authorization to release and a specific limited power of attorney from the seller/borrower.  That way you can talk to the bank about details of where and how to cure the default.  And when you go to sell, you'll have the documents you need for escrow to make a final payoff.

IMO a resale via seller finance is a horrible plan.  Wrapping a sub2 purchase is just a bad idea unless you or your buyer have the funds to pay off the loan in full if it is called due.  I suggest a resale to a buyer that can cash you out and payoff the underlying loan.

Sorry, I meant that the property gets listed for auction on October 23rd 2014. That's my end date to make this deal happen. I know there is the risk of the bank calling the loan due on a sub2, but from what I hear the risk is low. I have no experience with Sub2's and very limited knowledge on them. Is there a way for this deal to happen?

@K. Marie Poe  This is very helpful. I have the cash to bring the loan current, however, how do I protect myself from paying the loan current and losing the deal? My initial thought was to purchase the property sub2 and turn around and sell it to a fix and flip investor. Is this an option or is it outside the realm of possibility for this situation? 

Originally posted by @Brandon Kargol:

@K. Marie Poe: This is very helpful. I have the cash to bring the loan current, however, how do I protect myself from paying the loan current and losing the deal? My initial thought was to purchase the property sub2 and turn around and sell it to a fix and flip investor. Is this an option or is it outside the realm of possibility for this situation? 

I don't understand the questions.  If you purchase the property you get deed and the property is yours to sell or keep  This assumes that the loan is brought current so it's not lost to foreclosure.  What do you need to protect?

I'd do that deal if it were in my area, but you may be in a market where rehab resales are not brisk and the numbers may be too tight.

Kristine Marie Poe 

Who is this masked woman, reappearing into our little world, sprinkling her wisdom around???

Welcome back, baby!

Originally posted by @K. Marie Poe:

Originally posted by @Brandon Kargol:

@K. Marie Poe: This is very helpful. I have the cash to bring the loan current, however, how do I protect myself from paying the loan current and losing the deal? My initial thought was to purchase the property sub2 and turn around and sell it to a fix and flip investor. Is this an option or is it outside the realm of possibility for this situation? 

I don't understand the questions.  If you purchase the property you get deed and the property is yours to sell or keep  This assumes that the loan is brought current so it's not lost to foreclosure.  What do you need to protect?

I'd do that deal if it were in my area, but you may be in a market where rehab resales are not brisk and the numbers may be too tight.

My question in regards to protecting myself is this… If I pay the loan current before closing what is keeping the seller from backing out of the deal and me being out (in this case) $5,900?

You pay the $5900 when she signs the deed over to you at closing, not "before closing".  Again, what does "listed for auction" mean.  Is that the auction date?  Foreclosure auction?

Originally posted by @Wayne Brooks:

@K. Marie Poe 

Who is this masked woman, reappearing into our little world, sprinkling her wisdom around???

Welcome back, baby!

Masked woman.  I like it.  Think I might run with that in my marketing.

Good to be back!

Lessons learned, walk away! Why"

1, you ticked off the owner with such a low ball offer, why did you do that, out of greed or it that what it's really worth to you? If that is what it's worth, nothing is going to work unless she comes up with money (obviously doesn't have) or the lender accepts a short sale, probably not if they see anything near 125K as a value.

2. seller may be motivated, but not that motivated as she was with you before you made that low ball, not a workable offer. Subject to was the solution.

3. You said the bank was willing to wait for a sale where the loan was paid off. This deal is sitting front and center on the lender's desk. It]s in the gun sight, that means doing any installment deal like a sub-to will be pretty hard to slide by them. You catch up the payments and you're hope is they smile and walk off, not likely, if she is not in that property 60 days out they will more than likely be looking at what's going on. Bam, note called, now you ticked off the lender too trying to slide one by. Now, if it's a portfolio loan and you belly up to the bar honestly with the lender, they may let you buy if you catch up the payments and join on that note with her......they might, but going any other way, with slide by tactics, my thinking is walk away.

Buy it at foreclosure.

Buy it in partnership at foreclosure if you can't swing it yourself.

Might "wholesale" the deal now above her payoff, why hasn't it already sold? A long shot too.

So, had you been more reasonable in the offer in the first place and not caused a stink and drawn unwanted attention from the lender, an installment sale/subject to may have been a score, now, I'd probably walk away.

That's the reality form experience, for newbie buyers, others may discuss delusional options, but I'd say you're probably done.  Save time, money, brain damage and possible trouble and just say next. :) 

The house is in preforclosure, the seller loses the property on October 23rd, that's the day an auction date is generated and released to the public. Also, thank you Wayne for the info on the timing of paying the loan current. 

I'd write a purchase agreement that says spells out the terms of the sale and get the deed for a consideration sum ($100 or such).   I wouldn't reinstate the loan until I had the deed.

Originally posted by @Bill Gulley:

Lessons learned, walk away! Why"

1, you ticked off the owner with such a low ball offer, why did you do that, out of greed or it that what it's really worth to you? If that is what it's worth, nothing is going to work unless she comes up with money (obviously doesn't have) or the lender accepts a short sale, probably not if they see anything near 125K as a value.

Bill, you may have missed the subsequent posts where the seller is ready and willing to sell for loan amount. Sub2 is really the discussion at this point.

Without knowing what discussions (if any) have been going on between the lender and borrower (reinstatement or loan mod or short sale offers.....could be anything), you may be right about the unwanted attention now focused on this loan and making it risky to take over sub2. That being said, if the numbers were right and it were possible to reinstate, I'd still take it over sub2 short term. Sub2 purchases for rehab resales can be some good leverage. The property is scheduled for foreclosure already, so the seller's credit is trashed. If after reinstatement there is a loan call and/or new foreclosure proceedings, 1) I'd pay it off, or 2) there is likely enough time to get it resold and use the proceeds from the sale for payoff.

I obviously have some clarifying to do.

1. My intial offer was fair given the condition of the property. However, the sellers financial state (which wasn't fully known at the time) on the property made my offer impossible. 

2. The property does not have the equity to make it a wholesale deal. So it would have to be a sub2. Which I have limited knowledge on, hence the reason I created this discussion. 

3. The seller and I have a great relationship. She's needs the house off her hands and is willing to sell it at cost of the mortage payoff (approx 80k). Literally the deal is in my court. The seller is at the highest level of motivation. My biggest enemy is the numbers. I just don't know how to properly structure a sub2 deal.

4. The seller has only talked to the bank in regards to finding out payoff info and the foreclosure info. 

@Brandon Kargol Not having enough equity to be a wholesale deal doesn't make it a good sub2 deal. Sub-to is just an acquisition strategy. This deal might not be a deal. It's more important that the numbers be accurate and that you know your exit. In my market I could do that deal. I'd take over the $80K loan, do the repairs and re-sell it for $125K. But I know my market. I know how to control repair costs. I know how to get it sold. Or I'd pass it on to one of my buyers who wanted it. With a deal that tight you need to know your market. Can you get any experienced or professional help with the ARV or repair costs? Talk to a good agent about resale potential?

If I were you I'd work backwards from the ARV and re-sale potential. You also need the entire debt picture to make sure you're really getting in for only $80K.