Wholesaling a home that has a mortgage owed on it.

8 Replies

Hello all! I've been learning a lot from this site, and this is my first post. I was hoping to get some opinions on a potential deal I've come across. My market is Tulsa, Oklahoma. Theres a home near downtown in an area that has a bad reputation, but it really isn't that bad, I lived in the area myself for a couple years. This is an older home built in 1930 but surrounded by some newer well kept homes built in 2006-2007 that have sold in the $100,000 range. This home needs some work but is structurally sound. So heres the deal- The owner wants to get rid of it. He owes a mortgage company $12,000 on it. He tells me that he'd be happy to get $3,000 for it. I would flip it but my funds are tied up in a different deal at the moment. So, I figure I could potentially wholesale it. I estimate that with $5,000-$10,000 worth of fixing up it could sell for $42,000-$48,000. My thoughts are I could ideally find an investor to buy it for $17,500-$20,000. That way, the owner gets his $3,000, the mortgage co gets their $12,000, and I get anywhere from $2,500-$5,000. My questions are 1) Do you think the mortgage co would be willing to work with me on this type of thing? (They are an independent company) 2) Would this deal sound promising to you as an investor wanting to fix and flip?  Any thoughts, advice, opinions, concerns, are much appreciated! Thank you all in advance. 

My two cents as a Tulsa investor (primarily as buy and hold)...

1) Do you think the mortgage co would be willing to work with me on this type of thing? (They are an independent company) - Doubtful, mortgage companies local or not are not typically in the deal making business. They may be willing to mortgage the property under your name for the new and higher amount?

2) Would this deal sound promising to you as an investor wanting to fix and flip? - Depends on the area. There are areas near downtown that are not really safe at night, that would be a deal killer. There are also areas that are simply working class neighborhoods that are in the process of rebuilding themselves. 

I would be glad to discuss further if you wish to contact me privately. I can help you run the numbers or we can simply have a conversation if I can share any of my experience to help you. Good luck to you!

I would suggest you hold up. Leave the mortgage company out of it. They will not be interested in any deal making. If you find a buyer and the mortgage gets paid that is all the mortgage company will want to hear about. 

Your numbers are your business and if you can truly find an end buyer otherwise what in the world will the mortgage company care. The property is collateral for their loan. They want to get paid period. The rest is just internal to your own business. 

These are my thoughts. The mortgage company will not assign you the property if that is what you are thinking. 

Hi Travis. Welcome to the BP community. This is the best site that I've found for networking and sharing REI knowledge.

Maybe I'm confused, so bear with me.  But what does the mortgage co have to do with this transaction?  Are you trying to negotiate a lower payoff?  Unlikely unless owner is behind on payments. 

Here are my thoughts...not legal or professional advice.   Let me know if I misunderstood something.  

1. Write up the offer with as much runway as you can with the seller. 45-60-90 days, if possible. This gives you breathing room and flexibility to find a buyer, with less pressure. Listen to Michael Quarles "Buy Sell Fix Flip" (BSFF) podcasts. This will give a great overview on how to structure deals directly with a seller. This sounds like a great potential oppty for a Subject To deal. But even if seller won't do a Sub-To, the end buyer will simply pay off the mortgage. I would also recommend paying the $100 or so to join the BSFF Academy. This will give you access to all of Michael's forms, including his purchase agreement, which is golden. It gives marketable rights to you so that you can sell the property via MLS or other avenues, while in contract. (Pay the small amount to have a RE lawyer review the form to legality in your state, but find one that specializes in RE Investing ,highly preferralbe if they are a RE Investor themselves). Michael does over 200 transactions per year for many years, with this form.

2. Immediately put bandit signs saying something like "3/2 House for Sale, Cash Only" or words to that effect. This will generate a ton of calls to help build your cash buyers list, and may sell the property. Also if you use Michael's form, you can immediately put it on the MLS (this is called Wholetailing). Depending on your market, you will likely get a higher price than if you do traditional wholesaling. This is because it gets a wider audience, and you get the potential of contractor/flippers, contractor/owner-occupants, and owner-occ buyers that are willing to do the work slowly over time. They often pay much higher than a traditional flipper.

3. Put it on Craigslist, backpage and all of the other RE listing sites. 

4. Once you find the buyer with a fair spread for you simply assign the contract to them for your negotiated price.  Chances are that you will make double by wholetailing it.  I would recommend negotiating a non-refundable deposit of 5%-20% if possible to insure that you have a real buyer that won't play games. 

Whichever route you decide to take, I don't see where the lender gets involved.  They either keep getting their payments via Sub-to or they get paid off at close of escrow.  Read up on sub-to, because there is a slight chance that they will excercise the "Due On Sale" clause, but it rarely happens.  Even if they do, you will have time to find other exit strategies, depending on the foreclosure process in your state. 

None of the above is legal advice, just my 2 cents. 

Happy Investing!


@Gilbert Dominguez - I appreciate you taking the time to share your thoughts. I guess I'm thinking that the mortgage co plays a bigger part than it actually does.

@Peter K - Thanks for the 2 cents and info on the BSFF Academy. I think I'll look into that! So, lets assume I get under contract with 60 days to close. Then I successfully find a buyer for 17.5. The seller gets the amount that makes him happy. Then, I can just go pay the mortgage co their money myself with the remainder? I guess I just figured that they would have final say in what happens to the house since they are still owed money on it. I've yet to have to deal with any mortgage companies so far, the 2 properties I've bought I've done so with cash. So, I guess I'm still pretty clueless as to how it all works.

Thanks again to both of you!   

I agree with those that have said not to get the mortgage company involved. As long as they get their payoff, they're fine. Now, if you were trying to pay $3,000 for a house with a $12,000 payoff, then that's a short sale and a completely different animal. But for this deal, it sounds like the mortgage company doesn't need to be involved at all. If you'd like to send me a message or shoot me a text I can help you evaluate it as well, especially with regards to the area and repairs. I know doing my first deal I thought the house only needed about $15K in repairs but it ended up needing closer to 30. 

The mortgage company is paid off by the title company at the closing of the actual cash transaction, which will be performed by your cash buyer.

You're a wholesaler - you just get the deal under contract and market it to cash buyers, explaining the mortgage payoff as part of the numbers in the deal.

Whether it's a good deal or not, I can't contribute on that as I don't know Tulsa.  But I do have CASH BUYERS with WeBuyHouses.com in your market (both Tulsa and OKC) so if you have this deal under contract and you want our guys to look at it, PM me and I'll give you their contact info.

@Dev Horn @Kyle Critchnau - Thank you both. And yes, that's exactly what I learned last night, that the title co will be the one that gets the mortgage co squared away at closing. Makes a lot more sense now.. I was just over thinking it. But, I'm now waiting to hear from the seller to find out for sure if he's wanting to move forward. I'll get back with you guys and let you know how it goes. Thanks for reaching out!

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