Is there a way to help someone out of their house if they owe more than it's worth?

Hello Mason, where are you located? I've partnered up with a group of cash buyers that specialize in these properties. (short sales) send me the info. Thanks

I'm in Kalamazoo, MI. The property is it in Hickory Corners, a short drive from Kalamazoo. What else do you need to know?

Is not the only option. You can do a long term lease option on the property
(if it will cash flow) until what is owed and what it's worth even out. It is a way for you to make some $ and for the sellers to keep their credit so they can buy again.

Hey Matt, Cathy is right. If the property cash flows...you can do a long term lease Option, sandwhich lease. You would get monthy cash flow...(as long as it cash flows )profit in the back end when you cash out - depending what you sell it for, and, what ever down payment you can get from a tenant buyer. What is the monthly payment (PITI)? Stan

Monthly PITI is $764/mo. Doesn't really need any work to make it livable. Seller is living in it now with his family and says that it really only needs paint and some flooring. He owes about $104k on it, plus about $2400 in late payments (I said $107k earlier because I added the two up). I couldn't find any comps in the area, but between Zillow and Trulia, one estimates the value to be $85k and the other estimates $60k. If that is anywhere near correct, there is a lot of negative equity in this property.

He would need money up front to cover the late payments and to move his family, and he said that he would be open to the option of having his payments covered and getting nothing out of it as a a last resort. He listed it on the market about a month and a half ago for $123,500 to see if he could sell it.

How would a long term lease option work in this situation? Also, I read in a lease option book (by Wendy Patton) that if the seller is not in a good financial state, it would be better to have them sign over the deed to the house in a "subject-to" deal. I don't quite understand the risk involved in this case (wouldn't I be paying way more for the house than it's worth if I did it subject-to?), so if someone could write out an example with numbers, I would appreciate it.

Hi Matt,

This is really a short sale deal. Who wants to take on a property that is so much upside down, with no assurance that it will appreciate to $107k in the next 20 years? If you were to do a lease option, yes they would have to sign over the deed, you would take it subject2, the end buyer would have to put down enough consideration to catch up the payments and pay $764 a month until their option was up and they had to get financing. Could they? Probably not. You could do a sandwich l/o and stay in the deal and get money at the start and monthly by raising the monthly payment, but I would never do that to anyone. I question people's integrity that do that, figuring that they can just keep bringing in end buyers, with no hope of buying it at that price.
My 2 cents. Find a short sale expert, find a cash buyer, and work out a deal with them.

Vincent

I would look into a sandwich lease option if anything, short sales take way too long and aren't worth your time. There are people who "specialize" in short sales, but I've never seen them expedite the process any faster than I could.

Basically, you should try to take over their payments by doing a lease option and pay the $2400 as a down payment.

Then turn around and lease option it to someone else for a down payment of $5000 and $1000/mo or whatever the monthly rental rate is, I live about 90 mins from Kalamazoo so I don't think $1000/mo should be too much to ask for, so get even more if you can. If you have to put a lot of rehab into it, then this might not be worth your time, unless you charge a higher down payment for your tenant buyer. Or I guess you could always make your end buyer responsible for the repairs.

Although I wouldn't do this unless you have an end buyer lined up. You don't really want to put out $2,400 plus $764/mo unless you know you'll get it back relatively soon.

Then if your tenant buyer ever backs out, you still get to keep the $5000 plus whatever cash flow you made on it, and find a new tenant buyer for another $5000 down payment.

"I would look into a sandwich"

Matt.... WHAT HE SAID!(Dominic) And, that is exactly how I would do it. It's very doable and the most lucritive. Stan

I definitely realize that the sandwich lease option would work under certain circumstances, but in this case I would have to take the deed because of their financial distress, and then I would be stuck paying too much for the house. I understand the logistics of a sandwich lease option, but how would the end buyer get bank financing in a year or two when they are ready to purchase the house if the final sale price is still more than what the property is worth?

M5,
this property seems to be too deep underwater to do a sandwich lease option; usually you want to lease option a property for a couple of years while the tenant buyer fixes his credit and is able to purchase the property with a loan from the bank; who knows how long it will take for this property to have equity so that a lender will give a loan to a buyer to purchase it. Also, it will remain under the sellers name until it sells, so seller may not want to have their credit at risk for that long of a period.

Therefore, I think that you should find a broker in your area that specializes in short sales and ask if they'll pay you a fee for referrals...

Wishing you success,

Your are correct. This is supposed to be win/win.

You can always have a longer lease option if you see it fit. But after everything, I think you answered your own question, just walk away! Val's right, if you're willing, just find someone to pay you a finders fee for it, but don't waste too much time or effort on this deal. There are plenty more out there!

Start looking for desperate sellers that own free and clear! Not sure if this statistic is still accurate, but I heard 1/3 of all homes are owned free and clear.

Best of luck to you! Let us know how it pans out!

That's what I was thinking from the beginning. Thanks for clarifying.

Unless I can find someone who deals in short sales, I'll have to walk away from this one.