Wholesaling a Pre-Foreclosure

9 Replies

I have a motivated seller who inherited a townhome. It has since gone into pre-foreclosure. There was $49k left on the mortgage and she just heard from the bank that the lowest they'd settle for is $28k. How would I go about getting this under contract and still getting the bank to accept $28k? If she sells it, would the bank then try and get the $49k balance instead?

There's definitely a potential deal here since the property's ARV is probably around $70k, I'm just not certain of how I'd go about getting this done. If any seasoned wholesalers or investors had any advice, it'd be greatly appreciated!

The other caveat is there are tenants living there who are not paying rent and haven't signed a lease. Apparently a lot of drama with them. Would it be best to try and do cash for keys after purchase? Am I able to evict them without a lease in place?

Hey @Daniel I. that's great that you've found the situation and might be able to help this seller out of a tight spot. I'm not familiar with the laws where you live but here's what I would recommend: 

  • Begin the eviction process: depending on where the property is, it can take a long time to get the tenants out and most buyers won't want an occupied property, especially if they are going to fix it up. If the deal closes before you're able to evict the tenants, then try cash for keys but I would at least begin the eviction process and not hold anything up. 
  • Get the property under contract: even though it's in pre-foreclosure, the owner still controls the property. Getting the property under contract gives you a starting point for negotiations with the bank. In many cases like this, the bank may ask the owner to list the property for sale. Even in the case where you have to have it listed, it will go up on the market as a pending listing instead of an active listing since you already have it under contract. 
  • The Bank Cares About The Bottom Line: banks generally only care about their bottom line. You should structure your deal to cover closing costs on the front end agreement and close in 30 days or less. My suggestion is to write the agreement up for a little bit less than what they've said they would take to at least get them to negotiate with you. They may say they will only take $28K but they might be willing to take even less as long as you can close in a timely fashion and/or stricter terms (e.g. no due diligence period).
  • Get An Authorization To Release Information Signed By Seller For You: get the seller to sign an authorization to release information form. This will allow you to talk directly with the bank or mortgage servicer.  
  • Make Sure No Deed Restrictions: you will want to make sure there are no deed restrictions on the property that would prevent you from quickly flipping the property to another buyer. If you are buying it as a non-owner occupant there shouldn't be any sort of deed restrictions but just check to make sure the bank doesn't try and place any on the property 
  • No Assignments / Do Double Close: do not try to assign your purchase contract. Instead focus on doing a double close. The mortgage holder is going to try and minimize their losses so the fact that  you would be making money on the deal means they are missing out. 
  • Private Marketing: when marketing the property, don't market it publicly or with the address. Focus on your buyers list or other private arenas. 
  • Cash Buyers Only: if you are going to wholesale this property do not try and do it to a financed buyer. Focus on cash buyers only to close the deal.

I'm sure there is more but that's all that comes to mind right now. Good luck wholesaling your pre-foreclosure deal!

Originally posted by @Daniel I. :

I have a motivated seller who inherited a townhome. It has since gone into pre-foreclosure. There was $49k left on the mortgage and she just heard from the bank that the lowest they'd settle for is $28k. How would I go about getting this under contract and still getting the bank to accept $28k? If she sells it, would the bank then try and get the $49k balance instead?

There's definitely a potential deal here since the property's ARV is probably around $70k, I'm just not certain of how I'd go about getting this done. If any seasoned wholesalers or investors had any advice, it'd be greatly appreciated!

The other caveat is there are tenants living there who are not paying rent and haven't signed a lease. Apparently a lot of drama with them. Would it be best to try and do cash for keys after purchase? Am I able to evict them without a lease in place?

 Hey Daniel.

1) Locate a real estate attorney in the city of your subject property. (Make sure that they only do real estate transactions, or have a 'department' that only does re transactions-you want specialists.

2) The attorney's office will have to get 'your' motivated seller to sign a permission form that gives the closing attorney's office permission to request a pay-off balance for the subject property. 

3) The mortgage company will send the pay-off balance to the closing attorney's office; and the attorney's office will inform the motivated seller what is needed to close. ('Your motivated seller will tell you the balance that is needed to close if the seller is willing to contract with you.)

4) You should at least move forward with an offer to purchase contract, or standard purchase contract with 'and/or assigns' after your name at the beginning of the purchase contract (assuming the attorney's office has stated this process is acceptable in the state.)

5) You can insert the purchase price that you and the motivated seller agreed upon initially, because the seller will need to bring money to the closing table to make up the difference between the agreed upon price and the payoff balance. Plan 2_you can accept the payoff balance if it falls within the range of a wholesale deal.

6) Locate your end-buyer if you do not already have a townhome buyer on your list.

7) Have your assignment contract ready for your end-buyer waiting on the side.

8) Contact your closing attorney's office to schedule a closing date. Make sure the attorney's office puts the closing date on their calendar & get the time of the closing.

9) Scan and send the purchase contract via email to the attorney's office if you do not use docuSign, dot loop, or some other online platform for your contracts.

10) Get the end-buyer to sign the assignment agreement; then send it to the attorney's office.

11) Let the closing attorney's office handle the rest. They will need to give wiring instructions to 'your' motivated seller (to send the difference) if you choose that route. Your end-buyer will need the wiring instructions as well if everyone is closing remotely.

12) Congrats! You closed the deal buddy!

Anthony

@Marvin McTaw Wow, man. Thanks so much for such a detailed, step-by-step guide. I can't thank you enough! This is super helpful.

@Anthony Davis I really appreciate you going into detail on this. A lot of people just skim over the process, so it's really helpful to have it all laid out! 

@Daniel I.

Marvin's plan is better, Anthony's with an assignment will cause you problems and could blow the deal if they think you're wholesaling. It's also a good way to get nailed messing with a bank in foreclosures if you don't have funds to buy. Use transactional funding and hard money loans if necessary, you must close in you name to stay out of hot water. 

Folks in foreclosure are protected by federal laws you're probably not familiar with and interference with a bank with a bogus purchase contract is another covered matter by federal law, so you better be able to act as a buyer. You are in dangerous waters with foreclosures pending, don't be pulling any guru junk of wholesaling until after you close. Don't even whisper wholesaling!

Yes, you'll need to begin an eviction on a month to month basis, it will take time as you first need to give notice to terminate the lease month to month, then evict if necessary. See your attorney, your deal can afford one!  Good luck :)  

Originally posted by @Daniel I. :

@Marvin McTaw Wow, man. Thanks so much for such a detailed, step-by-step guide. I can't thank you enough! This is super helpful.

@Anthony Davis I really appreciate you going into detail on this. A lot of people just skim over the process, so it's really helpful to have it all laid out! 

 I just read a comment in reference to my post. The reason I always suggest a closing real estate attorney's office over a title company is because the office should be aware of the law concerning real estate. The attorney's will keep you within the law. As a very active investor, you want to keep acquiring properties if your goal is to become wealthy, not rich.

Always remember to take posts as advice, or a suggestion. Always perform your due diligence for your investing strategies. Remember, you are not communicating with the 

mortgage company, or the federal government, your closing attorney's office will be. The office will know if your process is within the law,band will offer suggestions. Let them do their job. Your job is to 1) Stategize 2) Negotiate 3) Acquire 4) Contract 5) Close 6) Repeat

Opinions are just opinions. You always want to look at specific information to boost you forward, instead of tons of different opinions to create analysis paralysis.

Well Said.

Anthony Davis, Active Real Estate Investor

Hey @Daniel I. , I would definitely agree with @Anthony Davis to use an attorney over the title company. Here in Georgia, we have to close with attorneys. That being said, my attorneys have been incredibly instrumental in helping me get deals closed, reduce and or mitigate my risks, and frankly have saved me a ton of money. Definitely get a good real estate investor friendly attorney. 

Good luck with your deal!   

@Marvin McTaw @Anthony Davis @Bill Gulley

Thanks again, everyone. So if the seller doesn't want to deal with the eviction, I'll likely have to wait until I close until I can evict? I've heard it can take awhile in Cook County.

Since I'm trying to wholesale it, is it something my buyer could just deal with when they close?

Originally posted by @Daniel I. :

@Marvin McTaw @Anthony Davis @Bill Gulley

Thanks again, everyone. So if the seller doesn't want to deal with the eviction, I'll likely have to wait until I close until I can evict? I've heard it can take awhile in Cook County.

Since I'm trying to wholesale it, is it something my buyer could just deal with when they close?

 Yes, it can be sold with a tenant in place. Get all the tenant information you can, copy of the lease. A buyer can evict if they need to. :)

Originally posted by @Daniel I. :

@Marvin McTaw @Anthony Davis @Bill Gulley

Thanks again, everyone. So if the seller doesn't want to deal with the eviction, I'll likely have to wait until I close until I can evict? I've heard it can take awhile in Cook County.

Since I'm trying to wholesale it, is it something my buyer could just deal with when they close?

 Yes, it is something that your buyer could just deal with.