Creative Deal Structure – Home in Pre-Foreclosure

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  • OK folks, let’s put our creative deal thinking caps on. I have a seller appt tomorrow that I am preparing for.

    This is an older couple that is behind on their mortgage to the tune of $18,000 to reinstate. Per the seller, this was a Covid forebearance come due. The bank is not willing to modify for them.

    ARV is $235,000
    Monthly PITI (and PMI) is $950.
    UPB is approximately $140k @ 3.75% with the loan having originated in 2018.
    Market rent is $1600/mo
    They are hoping to sell the house and then have it leased back to them for $1200/mo. They are on a fixed income of $2600/mo.
    The house is well cared for and in good shape. I could turn around and rent for $1600+ with little $ to make ready.

    Foreclosure date is set for 3 weeks away

    They can’t move immediately but want to move closer to family in the next year. They think they are going to be able to buy again….

    Deal Structure #1 – Buy the house for $170,000 with a Private Money loan and require that they vacate the house at sale.

    Deal Structure #2 – Buy the house subject-to the underlying loan by paying the $18k reinstatement fee. Explain the benefits to the seller and with this arrangement, we can lease back the property to them

    Deal Structure #3 – Reinstate the loan by lending them $18,000 secured by a 2nd Deed of Trust, with an Option to buy anytime at the UPB of the 1st Loan. The difference between their $1200/mo payment and the $950 PITI would be paid to us as interest on the $18k loan. The Option renews each month as long as there is an UPB on the $18k loan. If they want to keep the house, they can pay off the loan and buy out the option.

    Thoughts/Suggestions/Revisions ? Thanks in advance for any help.

    Hey Jay,

    How’d this appt go? Did you get the house?

    Nope – sellers won’t answer or return my phone calls.

    They wanted a savior to swoop in to buy the house and rent it back to them at a rate they could afford…which was $400 per month less than market rent.

    I wasn’t going to jump into bed with that deal….or any deal involving renting back to sellers that are in this position because they weren’t making payments on time.

    I think renting back to sellers raises a lot of red flags now thanks to victims that forget you saved them in the first place. Smart to pass on this one. You did make some offers though correct (not involving renting back to them)?

    I agree with Greg, red flags everywhere.

    It might not be illegal, immoral or even fattening, to offer to pay their taxes on the property in exchange for an option on that property that you’re interested in. If it’s financially feasible for you?

    It would be very smart to secure the option with a deed of trust, putting you in the chain of title, and therefore if there’s any action or inaction, for instance, property taxes, you might be one of those are notified!

    Dan Butler

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