Impending death of Seller & a Subject to deal with a 2 -weeks sell-deadline

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  • I just got a property under contract yesterday. Here is the tough part. One of the owners is on the death bed, and the husband wants the house sold before the wife passes away so she can die in peace without the burden of an unpaid loan. The husband too is in the last stages of cancer.
    So basically I have a max of 2 weeks; the seller was informed of that time frame by the wife’s physician yesterday.

    There was another investor before I came into the picture who was a no-show on the day of the closing because of some “lender backing out” problem, and this whole episode has made the family weary. When they saw my postcard, they called me, and I spent a good amount of time with the family yesterday, and we came to an agreement about selling their home on terms.

    So I asked them how much they want in cash right away if I could take over their existing loan with a promise to pay it off when I sell it fixed up in 6-12 months, and they said $25k. So I said I’ll do better than that, I’ll even put up money in escrow for 6 months just so they know their mortgage (PUTI) will be paid no matter what, and if I cannot finish fixing and selling it in time, I’ll pay for the mortgage (PITI) for the following 6 months too, or till it sells, whatever comes earlier. They agreed. I told them I’ll buy it “Subject To” with the deed in a Land Trust with the trustee and beneficiary defined.

    The house is a 2646 sq.ft one, 3/2/1 which can be a 4/2/2. It is built around a central 12-sided (dodecagon) courtyard that makes for a very interesting layout. The children of the elderly couple decided to help out the parents by tearing the interior down to studs and building it back up again as a family project. They got new wiring, a new roof, and put up 80% of new drywall without tape & bed, then figured out they had gotten themselves in too deep, so gave up the project.

    Repairs needed include finishing out the 2 gutted bathrooms, the kitchen, new HVAC including new ducts, finishing out framing a couple of walls, installing new windows, tape/bed/texture, painting, lighting fixtures, doors, baseboards, and of course the flooring. My estimate is around 60k in rehab.

    The uniqueness of the house and the rehab cost may scare the non-imaginative investors.

    The numbers for some of comps in the area are anywhere from $75-$84/sq.ft for the last 4 months, with last one rehabbed one sold a street over for $84/sq.ft 3 weeks ago, thus making the house’s ARV anywhere between $199k – $220k

    My private lender wants to be in a 1st lien position, and shall only loan the money then. With an underlying mortgage, and the bank holding the 1st lien position, how do I solve this problem?

    I want to help them get the house sold ASAP, hence the reason to put it up here for suggestions. HBS may be a way to go, but I do not have any time. Title work is done, but I have no time for marketing for an HBS. HBS by next weekend will be very tough.

    Or do I just quickly wholesale out of it? I put up a test ad on CL for a handyman special, but have not had any calls although the ad did not really give specifics of the numbers.

    I might have missed it but what is payoff of the first?

    You are leaving out an important element — the kids. They need to be involved in any contract and in total agreement otherwise they could say you were taking advantage of their parents when they were in stressful situation. The kids may want to get the house. It is important that you have all of them sign off on your agreement too.

    The parents can’t take the cash with them, so forget about giving them cash. Instead, tell them that you will create a separate note payable to each of their children. So, it they want $25k, and they have 5 kids, create a note for $5k for each child to be paid within 6 months. Get the title company to create the notes and record them at closing. Doing it this way, you can close next week which will put the parents at peace too. Get the house fixed up then sell to a retail buyer.

    The parents should appreciate knowing that their children will get cash after they are gone.

    Don, payoff of the underlying note is $45,250 as of November 29th. I am basically getting the house for less than 32% of ARV – the agreed upon sale price. I did not haggle at all. I just asked what they needed immediately, and what could be delayed. I am just trying to reduce the upfront cash injection so most of the money is used in the fix-up of the house to increase its value. That is why I had proposed a short duration subject to.

    Jackie, I apologize for not making it clearer in my post: the sons called me, and accepted my proposal of a “subject to”, with a cash portion to cover current medical expenses. After the sons had approved in consultation with the parents, and other family members, they invited me over to one of the son’s residence to sit with everyone at the table, as the son went line item by line item with the father (Mr. Seller).

    Mr. Seller, wants some money upfront to pay for the funeral and cremation, etc for his wife, (Mrs. Seller).

    So the Sellers and their family are on board with everything, and NO confusion is there. The kids do NOT want the house, and want it sold before both the parents pass away so that the parents are not stressed. The parents are living with one of the sons at the moment, so there are no living expenses, per se.

    Should I get back and offer 10k upfront at the closing table, and $15k created in separate notes for the kids?

    Or should I still do a hybrid HBS with an open house next weekend?

    No your in at 65%. Reduce the math. Loan pay of 45k, 25k to seller, 60k repairs. 200k value.

    Sorry do the math again.

    I am sorry but you are incorrect. My statement was I am buying it at less than 33% of ARV. You have added the repair costs etc. 70,250 is the barebone acquisition cost without the closing costs added. ARV was assumed to be 210k.

    ARV is the value with no repairs needed. Someone will eventually have to stick the 60 K into the home to realize that value.

    I really do not understand what is getting lost in this communication. When one buys, one life looks at how much % off one is getting off of ARV in a fixed up condition. Like say omg I am buying it at 33c on the $. You are still calculating what it would look like at the end of a complete deal with money put in to fix it – a totally different calculation.

    Like say, I am buying it* Please excuse the typo above.

    It’s all semantics. To get the value of 210K you have to put 60K in

    With all due respect, there is a technical difference, and no semantics are involved.

    “Buying price” in relation to the ARV value, VS “completed project with all repairs done, ready to sell retail” in relation to the ARV.
    70,250 as a % of ARV VS 130,250 as a % of ARV
    33.45% of ARV (our buying cost ONLY) VS 62% of ARV (our total cost in with 38% built in equity for a finished product)

    In any case, that is NOT the purpose of this discussion, but the exit strategy is, especially with the time constraint. Let me paraphrase again: kids have been involved in the decision making all along, no ambiguity, or confusion anywhere. Best way to move forward is ???

    Option 1. Bring in a money partner for the full amount, with a split in profits
    Option 2. Still keep the Subject -2 structure, but offer $10k upfront, with the $15k paid between 6-12 months, along with the loan payoff or when the house is sold – whichever happens sooner. The $15k will go towards Mr. Seller’s medical bills 6 months from now. Or $15k note for distribution amongst the childen made out in equal amounts as separate notes to be payable when the house is sold.
    Option 3. Conduct a Highest Bidder Sale for the next weekend, while still trying to find a local money partner.

    If you can pull it off option 3 sounds like a good plan. Good luck.

    ARV stands for AFTER repaired value.

    Is the property occupied? If the sick sellers are living there, a Highest Bidder Sale is not a good option. If they are not living there do a Highest Bidder Sale next weekend. You’d would have time to do aggressive marketing.


    Either come up with $10k to $15k to pay them now, buy subject to, and pay off the remaining note(s) later. You need to always plan an exit strategy before you jump in to a deal. So, if you go this route, would you fix up the house or sell it with seller financing (wrapping the underlying loans) to a rehabber? If your CL ad is not producing results, are you sure the numbers are low enough to attract a rehabber. Perhaps offering seller financing will help but maybe not.

    Can you get the buyers down on their cash over mortgage?

    Just so you know the title company will make the kids sign. There parents and in a ” incapacitated state” though they are not mentally ill. the title company will look at their condition and say their decision was based on unsound judgment ” to cover from law suit”. We had a house like this. I like Jackie’s idea of putting the lean with the kids names. this helps you with the cash on hand part.

    good luck.

    Thank you TK for the heads-up. I shall propose it to the sons in our meeting today, and make amendments to the contract accordingly. They are not agreeing to anything lower than 25,000 as the cash part of the deal paid at closing.

    Strange thing happened today. While I was at the house showing it to a realtor friend, a cabinet maker came by to measure out the kitchen and bathroom cabinets. Upon inquiry, he informed me “some guy” had told him to come do so. I got the “some guy’s” number and texted him, only to find out he was supposedly a contractor. He kept lying through his teeth about one thing or another, and when I informed him I had the contract on the house, he tried to pitch his services to me.

    Also found a couple of active investors in the zip code who all had proposed to buy the property at my price, but were rejected by the Sellers. So if I now do an Open house for the HBS, my minimum will be $75,000. (45,250+25,000+5000)


    What happened to this one? Did you get the deal? What are the numbers and what is your exit strategy?


    Jackie, I had the deal tied up when I initially posted. I have been marketing it on CL, Facebook, personal investor contacts, Zillow, and bandit signs. I have shown it to many investors who have brought in their contractors to view it. I have also gotten offers from 75k, to 85k to 93k. I have held steadfast in my demand for a quick close. Some have asked for a 2 weeks inspection period leading up to the closing – something I have already rejected.

    The numbers are:

    Buying price: $70,250 ( 45,250 loan balance + 25,000 to the seller for more than his equity share)
    Selling: $93k
    Rehab: $54k – $60k
    ARV: low end: $200,000; higher end $232,000 not taking into account the extra 200 sq.ft footage that will be added within the existing structure.

    Sounds like it is time to drop your price if you want to get this one closed by the end of the year and before the sellers pass away. $85,000 is still a $15k profit for you. If the sellers would let you take over payments on the underlying loan you could pass that financing on to your buyers which might help but it would still be a chunk of cash they would need to come up with for purchase and rehab so they may prefer to do other financing.

    I wholesaled the house to an investor/rehabber.

    The numbers were:

    A-B Buying price: $70,250 ( $45,571 loan balance + $25,000 net to the seller for more than his equity share)
    B-C Selling Price: $93k
    ARV: low end: $200,000
    Net profit to B (me): $22,035 ( this does not include my marketing costs. I also covered all of the Seller’s side of the closing costs sans title insurance)

    Let me be clear: The Owner/Seller asked for $25k above his mortgage pay-off that I agreed to. He also agreed whatever extra I could sell the property for would be my earnings. This deal was a real challenge on every front.

    At the closing table, the Buyer wanted a last minute reduction in price because his lender did not loan him the money he wanted, and required a lot in upfront points, and pre-payment of interest. So the Buyer, in sort of an arm twisting way, asked to either reduce the price to help him, or carry the upfront lender required fees for him. At the end it was decided to split the fees, so I would carry $2500 for 2 months for the Buyer. Mind you, the Buyer had his personal funds for the lender required fees, but refused to use it.

    Now I want to know what collateral should I use to lend him the $2500 for the Promissory Note? The buyer offered his free and clear SUV worth $7-8k in the open market. I do not feel comfortable with an asset class of a collateral that can be wheeled away, and is not fixed, and in the Buyer’s possession at all times.

    I want to use an Option of some sort against the property that would give me a right of first refusal to something like Jack Miller used to use. An Option can be created for anything. What would be the most creative Option to use in this case that would also secure me? I know $2500 is only a small amount for an Option experiment, but I want to experiment with this so I can use it elsewhere when Buyers fall short.

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