Renting back to the homeowner

typically the homeowner is thankful in the beginning for helping them, but grows bitter as time goes on because someone else owns HIS house. Yes, it can be done but it is hard to please everyone.....and that includes you.

Don't try that with a short sale banks are not going to take the hit and then let the same people take the property back over.

Yeah, I could see that. I just wish there was some way to help these people so they don't lose everything. In so many cases it's not their fault and I hate the thought of profiting from someone else's misfortune. Makes me feel like a vulture.

I agree with Bill. I did this ONCE and like Bill says they grow bitter through time and forget how you once helped them. Dean also says NEVER leave them in the property-get them out and put them somewhere else.

You can't take it that way some one will ultimately buy the property and make the profit. In most cases it end up being a better solution for the people because they get to start their life over with out all the worry and depression, yeah it feels bad at first but after awhile they feel grateful to get the problems off their back.

I knew other people would have a better idea of whether or not it could work. I was thinking more along the lines of having a clear time-line with the homeowner to buy it back (say 1 year, 2 years) but wasn't really sure if it was feasible. Experience is the best teacher!

I just closed on my first deal (wholesale)and I am onto a second (so excited!)I am still a novice and do not want to screw up so if anybody can help me I would greatly appreciate it.

Here's a scenario that I have brewing. I have a motivated seller in Long Island, NY that wants to sell his house for $300K. It's a 5 BD 3 BTH splanch in mint condition. Recent comps (last 3 months) range from $390K to $577K. He indicated he had an "appraisal" performed 1.5 months ago and it appraised at $425K (I have not seen it yet). I would look to sell to retail end buyer for about or cash buyer (the property could be improved in some ways).

He wants to close fast (within 30 days) BUT does not want to move out until June when the school year is over for his children. He mentioned closing right away and then "renting" for just a few months until June. I am not comfortable with that scenario.

I would like to get some brainstorming ideas to make this work for all:

-Close and transfer deed for a minimal amount of money (500?); owner to hold balloon mortgage note for $299,000 due 6/30, assuming he has moved out. I will market for an end buyer in the meantime that is ready to close at the end of June. I would put penalties in the contract where the note decreases substantially if he doesn't vacate and turn over the house by 6/30 and as time goes on the price owed goes down. I can get short-term transactional funding if need be if there's a gap in the buyer coming in, but with all the marketing time I'm not anticipating an issue. I would also put a Quit Claim Deed back to seller to protect him in case I didn't close so he doesn't need to foreclose.

Does any of this sound feasible? Am I on the right track? Has anyone done a deal similar? I Any other ideas would be appreciated

you're on the right track in contemplating how to do the deal. Why does he want to sell? If it is a bank or credit issue, you might have a problem with them looking at the transaction as a fraudulent transfer scheme.

If he owns the house free and clear, then your direction holds fewer trouble spots. Just make sure you can make the $299,000 balloon note payment. You shouldn't have any problem doing that if the appraisals are true and factually correct.

Hi everyone! I don't agree with these statements. The company I partnered with does these types of transactions all the time! We get the homeowners permission in writing to negotiate the short sale (getting the property @ 50-60% below FMV). There is full disclosure, so the bank knows we are lease-optioning back to the original homeowner (it's in writing that they can't perform a deficiency judgment). We also provide credit counseling for the homeowner, so that when the 5-10 year option agreement expires, the person can purchase the property back. If they are unable to, we can do a lease extension. Most homeowners are motivated by the sheer fact that they want the property back in their name (which really should be in a land trust anyway, but that's for another forum).

-Charles

Once the house is not his responsibility, suppose he says "i'm a little short my kids camping trip costs $X" or "i'm trying to save for my next place to live"

Move on. Especially with the mega high taxes and carrying costs(higher oil and heating) you'll be in the hole before your 30th day of owning.

Why doesn't he just keep the house until june??? That sounds lik a painful purchase.

Check the laws and be very careful with that. In some states it's illegal to do that specially with a short sale. You would be better off putting the family into one of your other houses hopefully one they could afford.

It seems that their are a lot of people that want to give their opinions but it comes down to what you want to do. If you feel you can do this then do it but I would make sure I had ironclad contracts where you will not be blamed for stealing their house from under them. A lot of times these people will accuse you of taking their house for a song and want to go to court because you cheated them but if you have good contracts and you have an understanding with them to begin with then you should not get into trouble. Make sure your numbers are good and everyone will walk away not so bitter.

It's illegal in all States... it's called skimming. You'll be in jail facing 10 years. Do to some bad apples this practice is outlawed now. Just takes one to ruin for everyone. Call your local Attorney General's office to get the exact details on what you can and can't do.

best of luck

Thanks for posting this question, and thanks everyone for the replies. I have a preforeclosure, but I'm gonna sell it and put the family into another home within their budget.
Daniella

it's a win-win for everyone-you get two deals; they get a fresh start.
Valerie

In short sales, an affidavit is signed by all parties. It is called an "Arm's Length Transaction Notice" and is as follows:

"Affiant further says that there are no agreements or understandings, written or implied, that will permit Seller to remain in the above mentioned property as a renter or to regain ownership of said property at anytime after the execution of this short sale transaction"

Penalty for not abiding is bank fraud. You do the math.

If they are in a house that they cannot afford and a NED goes out or it goes into Short Sale or Foreclosure why on earth would you rent it or lease it back to them. Didn't they already prove they couldn't handle the payments? If they want to stay there they need to negotiate something with the bank or downgrade to something more affordable thus giving you two deals!

Ok, just to clarify for the people jumping to conclusions about skimming and illegal activity, etc. I wasn't even suggesting buying a short sale from a bank and paying a reduced price to the bank and then keeping that owner in the home. I was looking into the option of buying from the homeowner who is finding it difficult to keep up BEFORE it goes into foreclosure or a short sale...before it ever reaches a crisis level. But based on the earlier responses I received, I have come to a conclusion that it wouldn't be a good idea anyway. So, on that note, I have already eliminated that as an option. Thanks for everyone's help!

You might need to research the new law signed by Congress recently. The new law states the homeowner will take 82% of the profit & you get to pay all taxes fees expenses ect.... Plus a really long list of other laws you need to follow. The laws passed recently make it nearly impossible to make any money on Pre-foreclosures, foreclosed and short sales. Again a few bad apples and we all get nailed.

OREGON HB 3630 - REAL ESTATE ANTI-SCAM LAW

Other states have the same law but it'd be a long state of all 50 states.

Here's a short line from the new law:

"It prohibits a foreclosure consultant (ie RE Investor) from being the purchaser,and requires that 82 percent of net proceeds from the sale of the house be given to the homeowner."

Once they get forclosed on they can not get a traditional type loan for several years. ** Loan products do change and a loan product may come available in the future with a shorter time line. See if you can find a home in the area and rent it to them? In my area (Powder Springs Ga.) I am seeing alot of Owner Finance properties come on the market. Maybe you can find a Owner Finance home tie it up and make some on the front end?

-Best Wishes!

it's deceptive, unethical AND if the homeowner failed to pay their mortagage to a big bank what makes you thinks the homeowner is going to pay you rent? If they decide not to pay and you have to kick them out, try explaining why you let them remain in the house after foreclosure to a judge.

As usual, I'm with Bill.

Another thing to be careful about is that if the owner lost their home because they were unable to pay their mortgage or property taxes, why would they suddenly be able to begin paying you without distress? Not to be unsympathetic, but as far as I'm concerned, they're going to be forelosed on and/or evicted.

Rick in Amarillo, Realtor

Hey everybody. Well with the new laws that congress passed does anybody have any ideas about how we can profit from reo's. Michael from colorado, do you have any ideas since you do alot of reo's any help will be appreciated. I don't even know if its now possible to do reo's.

Thanks, I will double check the numbers and that the appraisals are true and factually correct.

I appreciate the response

Thanks Charles,
I will look into the Land Tust forum for additional information.
I appreciate your response.

What is a "NED"

Thanks for the good advice. I will check on the laws in NY. I don't have any other houses (Yet). I appreciate your response.

Kim, If you really want to help them, buy their house, if the deal is right, and place them in another house that they can afford or perhaps a rental or lease option. Bill is right you will always be the bad guy because you own their house.

If you were screening tenants and you had some on the list with a record on non-payment, would you rent to them. Well, that just what you would be doing in the situation you have suggested. Yes we would love to find a way to keep owners in their homes, but if they don't pay consistently then that will always affect you cash-flow and bottom line.