What do I do to seal this deal???Need advice

What does he owe on the house?

I remembered this from a post by sissy i think.
Purchasing property “subject to” the existing financing is a great way to acquire any property, not just PreForeclosures. By purchasing the property “subject to the existing financing” we are not getting a new loan, but rather having the seller transfer title to us (or into a land trust), and we take over the payments for them, and begin making payments directly to the existing lender. This allows us to control a lot of real estate, without ever having to sign for a new loan against our personal credit.

If you’re going to buy a PreForeclosure property using this technique, most deals will be fairly common: first of all, the homeowner is going to owe the lender back payments. Let’s look at a case study of a home I recently purchased when contacted by a seller who wanted to stop foreclosure on his home.

The seller owed a total of $208kon a home worth $260k. He had PITI (Principal, Interest, Tax and Insurance) payments of $1500/month and was 4 payments behind. After late fees, penalties, and attorney’s fees (the property had already gone into foreclosure status) the reinstate figure was $7,000. The seller also had 9 months left on a prepayment penalty, which would have cost him 6 months of interest (approximately $7,000) if he had sold the property and had the loan paid off.

Do enough research on this sight and you will find most of the answers to your questions. I have gained a ton of knowlege from everyone elses experiences and am using it to my advantage. P.S. My wife and kids think im crazy because of all the time i spend on this sight reading and printinglol. But it has helped my get my first deal in motion.good luck!!

He owes about 270,000.

Reselling property back to a homeowner losing their home has a few fitfalls that you should be aware of.

1) How will they pay you? They already missed payments once.
2) They may have claim to equitable rights to the home. Easier terms: they may still have rights to the property even after you take ownership of the home. This would force you to foreclose instead of evict.

He fell behind on payments because of a heart attack. He says he can prove rent payment. He is just to far behind. I thought if that if I could get him to do a lease purchase no option after two years. My question is what can I do if I pay cash for the property? I have poor credit. I am getting the property at discount. Would I be able to get a bank to refinance the property since it would be paid in full with bad credit?

First what is your credit?

Often you can get hard money lenders to help you purchase.

Another option often overlooked is working with a partner. - If this is what it takes to get the deal done and make money hey why not?

If I had ok credit I would refinance after I purchased with hard money. If I partnered I would find someone that could refinance with me.

Is my thinking here incorrect? If I paid cash for a property in this case 175,000 then do an immediate refinance at say 230,000 I would be able to pull money out. Comps in the area are going for 270,000-305,000$. Also would a bank refinance me with poor credit? I would be borrowing the money to pay cash of course on a short term and double close for the refi. Just wondering if my thought process is in the right direction?

a quagmire,poor credit/no refi,also the HML will want to know your exit plan.with almost 100k in equity it sounds tempting,so if you purchase, you can use the time if you lease option it to him to build up your credit score so maybe can refi to pay the HML if the option is not executed.

also I would check to see what it was worth in 03.the insiders are saying that`s what the true values are today.so you will want to have an idea what you can refi for if the option is not executed

The balance owed on the first loan is 220,000. The original loan was for 244,000 in 07. He put 60,000 in upgrades. If like you say worth is around 2003 then I would definitly want to lower the offer to the Bank. I believe from my readings the forclosure process is around 30,000 for the bank. Also with closing costs it would cost the bank more. I am thinking about offering 150,000. Does anyone have an idea of what a fair offer could be.

Before getting into the deal, you need to determine does your whole deal hinge on this 3rd party? If it does, don't do it, otherwise you are setting yourself up for a losing situation.

The current owner has been delinquent. You said a heart attack was the problem, which is just as concerning as a financial issue. You should be walking into the deal with the following things known to be true.

1) If the owner cannot afford the rent or decides to bail you can quickly rerent it at that price, easily.
2) If the owner does not decide to buy it, or otherwise bails, you can resell it at a profit, easily.
3) The short sale doesn't have any contingencies about the owner who has defaulted remaining in the property or repurchasing it later (some will as a way to keep people from gaming the mortgage/bank).

First, I would be cautious with this deal if the primary reason is you being motivated because of the owner willing to be part of it. You need to take that out of the equation and just figure out if the deal is good or not whether or not the owner if involved in any way. If it isn't, then it's a BAD BAD deal. Also, don't let the owner try to talk you into anything. The owner may be more concerned with getting a short sale done so their credit isn't wrecked and telling you anything you want to hear, as opposed to simply staying in the house.

Appraisal means nothing really. Simply find CLOSE comps (similar home, in close proximity, and RECENT sales price(s)). If it comps around $200k, then offer $100k - $130k. Basically start around 50% - 35% off actual comps depending on how solid the returns should be.

This is likely going to be a problem due to LTV, credit and maybe even seasoning. The whole landscape has changed in the last 2 years. You might be able try just getting a local bank to do a portfolio loan for the 175K and leaving your equity in the property.

Then you would just have to wait to get paid.

There are a lot of houses like this where there just IS no deal no matter how motivated everyone is until the bank forecloses and does a major discounting.

If comps in the area say a certain value, why would the bank agree to sell for 1/2 of what the current comps are saying? Isn't that part of the short sale packet, convincing the bank that the current comps are LOWER?, and that's WHY a short sale needs to be done?
Just wondering.

Excellent question. Here are my thoughts. Comps are basically a snapshot of the market. The market is made up of individuals. Individuals (homeowners) are often emotional about their property ie their home. Additionally, many homeowners are "stuck".

In many markets, this is leading to a case where the people who have to sell cant and let their home go back to the bank. The people who dont have to sell... dont. They just stay put eventhough they would like to sell and in a normal market they would put their house up.

Banks are NOT emotional. The property they own is a liability, NOT an asset. The bank wants to get as much as they can for the property, yes. But they also want it moved NOW. The longer they hold it, the more they have to write it down (de-value) it. Thus, a bank is more likely to take a lower offer ie an offer BELOW FMV. You also have to consider the condition of the property. As investors, if a house needs 10K worth of repairs, we arent going to drop the offer price by 10K.. we are going to drop it by MORE than 10K.

Last point.. In some communities, ONLY bank owned properties are selling. And banks are literally dumping the properties. To me, this is an artificially depressed market and when the foreclosures taper off, you will see an instant bump as owner occupants become the sellers again.

A couple weeks ago I had my realtor pull ALL the homes that have sold in the last 60 days, regardless of price, in my WHOLE county (which includes my target city). Guess how many sold? A whole twenty (20)! And I was surprised to see the price range the majority fell into. $120K-$180K. Which means to me there are some people out there with a little bit of $ buying homes to LIVE in. There have been VERY FEW cheap REOs coming on the market in the last few months. The first one in a long time in the $50K range came across my e-mail last week and I jumped on it, CASH. Still waiting to hear from the bank.
All that being said, I am changing my focus a bit to find outright retail buyers and deals on homes (REOs) in the higher price range. I think I could make out pretty good by adding this to my plan.

I don't know how that relates to what I quoted from you, but it made me think of it. lol
And now that I think about it, I'm probably hijacking this thread.... oops.

Rina

This is true. FHA DOES still make loans. I am looking at getting into this as wll. Buy REO, rehab, sell FHA to owner occupant. The keys are: buying right, NAILING your rehab estimtate, and knowing your retail price. Also, include a little slop so when the buyer offers 4K less than your asking price, all your profit doesn't go out the door.