I found my first motivated seller. Now what?!

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I found my first motivated seller. Now what?!

B Hunter Lott
Investor · Denton, TX · Member since 2016 · 3 posts · 0 votes

Hey All,

Here's the short backstory: My wife and I have been renting out our townhouse in Denton, Texas for the past 2 years and have been wanting to expand and grow our real estate investing experience. We ended up finding a family friend who said that she'd be willing to fund a fix and flip deal with us if we found the property and did all of the leg work. Exciting opportunity! So, we decided to try a concentrated wholesaling campaign of 1 handwritten letter. 

Here's how we found the property: 

1. Drive for $ in our zip code and save every distressed property on Zillow

2. Went on our (free) county tax assessor's website and researched each one of the properties looking for a) Back Taxes , b) Absentee Owner, c) 60+

3. Wrote a handwritten letter with a little info about my wife and I and why we were interested (included picture). 

In 3 days I received a phone call about our letter from the owner's friend/POA (owner has dementia)! The friend/POA said that the owner doesn't really need any money and doesn't have any kids that would benefit from the sale. Friend/POA said that it would really just be easier to let the property to go into foreclosure but she liked our letter and wanted to try and help us if possible.

Here's were we could use some experience and creativity: 

The property has a Reverse Mortgage! 

So, the property will absolutely go into foreclosure if we don't buy it. The Lender is Wells Fargo and the Reverse Mortgage is with HUD.

Question: Would Wells Fargo or HUD be willing to work with me on an affordable price or would they both prefer to take back the property through foreclosure?

Thanks Everyone,

Hunter

Also, if there is a better place to post this question let me know.

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Greg H.Pro Member
Moderator
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
9y

Unless the property is a deal at the current balance, there is no deal here. WF will not deal with you whatsoever as they have no incentive to do so as they can collect on their mortgage insurance with HUD. HUD reverse mortgages are subject to 24 CFR206.125 which basically states the property must be sold for 95% of appraised value

Above does not even address whether the POA has the power to sell the property

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  • Account Closed
    Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @B Hunter Lott Congratulations on your find. There are only three immediate problems that I can see. 

    1) A person with diagnosed dementia doesn't have capacity to sell their house. The person with the POA has to be determined by the court to be able to sign a property over to you.

    2) Oftentimes the county or the state have a claim against the property if medical/memory care services were performed at their expense. Check and see if there is a claim.

    3) Reverse mortgages almost always have to be paid off when ownership changes hands. Don't expect help from Wells Fargo. Do a quick search on the internet to get an idea of their business practices and the numerous fines they have received. HUD is not likely to work with you, since you are not the owner.

    Other than that, at least you got your feet in the water. Work this deal through as far as you can take it for the experience. That will be valuable experience going forward.

    3Reply
  • B Hunter Lott
    OP
    Investor · Denton, TX · Member since 2016 · 3 posts · 0 votes
    9y

    Thanks Ken. 

    As soon as I found out the the owner had a reverse mortgage I assumed that this would end up being a free, long drawn out learning experience. There are two reasons why I've stuck with it:

    1. Ugliest house on the block with good potential 

    2. Incorrect information in the appraisal and county info that make it undervalued. 

           -I was able to dig up the original  

            plat of the subdivision and             

            found out that it sits on 

            (almost) double the acreage 

          -It was appraised as a 3/1 instead   

           of a 3/2

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    Unless the property is a deal at the current balance, there is no deal here. WF will not deal with you whatsoever as they have no incentive to do so as they can collect on their mortgage insurance with HUD. HUD reverse mortgages are subject to 24 CFR206.125 which basically states the property must be sold for 95% of appraised value

    Above does not even address whether the POA has the power to sell the property

    4Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    9y

    @Greg H. is correct; even when a house with a reverse mortgage is being sold as REO, the sale price has to be no less than the lesser of either the loan balance or 95% of a recent appraisal of the property. If a short sale is attempted, there will be an appraisal and then it can't be sold for less than 95% of that appraisal.

    So reverse mortgage properties tend to be "no deal". But worth exploring to see what the loan balance is, just in case it is low enough for it to be a deal.

    1Reply
  • B Hunter Lott
    OP
    Investor · Denton, TX · Member since 2016 · 3 posts · 0 votes
    9y

    Thank you Greg and Steve!

    I've asked for an updated statement which she is supposed to have for me tomorrow. I did know about the 95% (and has to be cash) rule but the POA issue that you all brought up was not on my radar.

    If they appraise the property like they have for the county and like they did for the Reverse mortgage, I could still make a little money at 95% (due to incorrect acreage and # of bathrooms). 

    1. So, say the POA can't sign, would HUD or Wells Fargo be willing to sell at 95% appraised for cash directly to me?

    2. What happens to a Reverse Mortgage property after no one is willing to pay for the 95%? Will it turn into a HUD auction at a lower price?

    Thanks again,

    Hunter

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    9y
    Originally posted by @B Hunter Lott:

    ... 

    1. So, say the POA can't sign, would HUD or Wells Fargo be willing to sell at 95% appraised for cash directly to me?

    2. What happens to a Reverse Mortgage property after no one is willing to pay for the 95%? Will it turn into a HUD auction at a lower price?

    ...

    Answer to question #1 is no, Wells Fargo does not own the property; if it goes through foreclosure and becomes REO, then Wells Fargo will have the right to sell it.

    For question #2, it will be allowed to sit on the market for a number of months at the 95% amount. If no offers come in, then it can be re-appraised; I believe there is also a process for lowering the price if that next appraisal isn't lower - you can research the HUD rules that

    @Greg H. posted earlier.

    1Reply
  • Brett Goldsmith
    Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
    9y

    Does the property have equity or is it upside down? Yes, you could try to buy it as a reverse mortgage short sale if seller/POA are willing to buy forward. You may get a good deal depending on WF's appraisal.

    1Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    A short sale is a Hail Mary at best at this point as:

    -The OP doesn't even know if there is any equity

    - The owner may have assets and therefore to pay so no reason to do a short sale

    - The POA issue. Even if the POA has a blanket POA it will most likely not be accepted by the bank or the title company handling the transaction. The will both was a specific POA

    Congrats to the POA on getting his feet wet but this it the type of 'deal" that often requires months of work to find out there is no deal

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