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You get a call for help because a couple’s house is being foreclosed on. There are only 2 weeks until the auction. They bought the house 40 years ago but have, unfortunately, been refinancing every time they got some equity so they still have a mortgage. They owe $55,000 on a $140,000 house. The wife got cancer 6 months ago. The hubby took time off from his business to take care of her. They have used up all their savings and cannot pay the $6500 to prevent the foreclosure. They tell you they want to sell the house then they plan to just rent sometime until they can get back on their feet again. The house needs about $10,000 to get in in tip-top shape. You ask what’s would they take for a quick sale with money in their pocket in less than a week. They agree to sell the house $85,000. With $55,000 subject to the mortgage, you pay $6500 to catch up the back payments, then $35,000 cash to them. You write up the contract and they both sign it…. BUT then they both start crying because this has been their HOME for 40 years and they are so sad to lose it.
What would you do?
This one baffles me. I am not sure what I would do with this one and I am looking forward to other people’s answers on it. They probably can’t afford payments that would cover the mortgage and cash flow to me so buy/lease back seems off the table. What I might try is offer the $6,500 paid directly to the bank as an option on the property at the price of $85K for the next 7-8 years.
If I am thinking this through correctly my option would keep them from refinancing (as long as it is recorded) as I now have an interest in the property. They could continue to live there, but would get out of foreclosure and if they decide to leave before 7-8 years fine, if not in 7-8 years there is a good chance I would pick up a house with a lot more equity in it than today and be able to flip or refinance it to pull a lot of cash out.
Outside of that, I am at a bit of a loss as to what else I could try.
What I would do is arrive at a price that they will accept for themselves. Finding the price agreeable. For the property.
I would write up a purchase contract, and let them help me fill in the blanks, they could tell me what they owe, and I would state in the contract that in you and the amount owed is different than the amount so stated by them that the price would be adjusted upward or downward.
I do hope I’m clear.( The stated price would be the $85,000, and I would make it clear in the contract that any additional liens will be covered by the seller that are over and above the $85,000)
I had about 15 liens on the property and the purchase was subject to good clean clear title. Just like any transaction should be.
Because quite often the liens are a lot more than what the seller remembers. Will Many of the buyers are excited and in a hurry to close a deal and move along.
What I would not do is allow them to stay in the property if I truly wanted to be the owner.
If for some reason they were going to stay at the property, I would do a work around and bring a 3rd person in purchase the property, dealing with Dodd Frank and various lawsuits, staying safe is better than taking a risk.
I would want to procure a good clean clear title report and also consider the fact that an option would not have standing in the line of title. Or at least have the agreement read that the closing of the transaction is and will be bound to a good clean clear title report.
Therefore I would not want to utilize an option for the purchase.
Any other liens holders would be taking care of by the title company and subject to my approval prior to closing, requiring an additional endorsement from the title company to ensure that myself or my lender could receive an extended Alta title policy in a guaranteed 1st lien position.
I do private money loans and this has helped many of my borrowers negotiate with their sellers.
I have utilized the skilled negotiation for years and simply tell people I will give you __________ number of days and I let them name the days.
I will get the contract signed by both of us and I’ll run the title policy, and if you’re able to sell the home to someone else for more money, at least you’ll know you’ve got this one that you can fall back on in the event. It does not sell and you do not completely lose everything.
I’ve done this numerous times, you feel like an ally to the people and not an alien you’re on their side and you’re working for them.
You have a great day. Thank you Dan Butler
Might be an opportunity to purchase a life estate from them. Catch up the back payments, a little bit of cash and no rent payments for X amount of months or until death. This is a slippery slope and agreements need to be prepared by an attorney.
some great idea.
There are a lot of other ways this real estate problem could be solved. What would you do??
What if you could help this couple sell something else they had that would be enough to stop the foreclosure? Would you do the deal even if you did not make any profit or only a small profit?
Could do a straight option to buy any time in the next 10 years for 35K with the $6,500 as option consideration
Don, love your idea to buy an option for $6500 which is enough to cure the default, they get to stay in the house longer, and you get a nice profit later. win win!
This example was another deal that I actually did.
The couple had a 35′ RV parked in their driveway that had a faded For Sale Sign. I asked if they would take $6500 for the RV so they could get enough cash to stop the foreclosure. I wrote an option to buy the RV for $6500 then I called every RV dealer in town to ask what they would give me for a 35′ SouthWind. I was offered $14,000. I hired someone to drive the Rv to the dealer (I was afraid to try to drive it myself) so they could look it over. I got a check for $14,000 that day. I gave the homeowners the first $6500 then we split the remainder even though that was not part of our agreement. So, I made a couple of thousand dollars for my efforts and stopped the foreclosure plus the owners for some cash to help them get back on their feet again.
Sometimes the best solution is NOT to buy the house!
@ Jackie and others, writing the option on the RV was definitely the safe way to go. Do you have concerns getting options on owner-occupied homes these days? Do you have any experiences when the owner had “amnesia” after you’d solved their problem and later accused you of trying to take advantage of them?
Ari, an Option is the SAFEST thing to do these days. You get everything in writing and have everyone sign and initial next to key elements of the agreement.
Anything else is risky.
An option is a unilateral contract, and you can hold an option with an owner and never exercised the option. And pay no penalty and have no loss!
Jack Miller did very well at teaching the options class and planting seeds in the heads of those who attended.
If you have not yet received the options packet you should. If you have you should study it use it and don’t be afraid to tweak your contracts to protect yourself and make your option contract favorable!
To your success,
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