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So my bandit signs paid off and I am getting about 8 calls a day from sellers. Most I discount immediately. They are sub2s with way too much debt. NEXT! The only other places I’ve bought have been through word of mouth or from someone I had a relationship with beforehand.
One guy was rather interesting though. He had his bankruptcy discharged last July. Getting divorced in May, and hasn’t paid his house payment since January 2007. Reason? His house is severely damaged from fire. We are talking total gut job. Kitchen, LR, 3BRs, 1.5Ba and garage all need to be demoed to the studs. Basement is okay though :laugh: New flooring and siding as well as roof repairs. He is VERY motivated and would sign something tomorrow.
He has a check for $116k from the insurance co with the potential to get another check from $30-40k from the insurance company as long as work was being completed on the house AND the seller was on the title/deed. His soon to be ex wife quit claimed the deed to him. She wants nothing to do with it.
He has 3 mortgages. 1st for $105k, 2nd for $40k, 3rd for $10k. Total debt $155k. This is near a wash with his two checks from the insurance.
Here’s where I come in. I am wondering if I can call the 1st lender and negotiate a discount. Say 10% to be conservative, but hopefully more. If they say yes, can’t I then go to the 2nd lender and tell them the first is willing to take a discount, they should as well? Maybe they give me 50c/$. Then repeat with the third for 10c/$. Can I do that? That would be $116k right there.
The sticky part is he really wants to keep the house. He would like to possibly rent to own from me or do something (maybe a pure option?) in the future. Knowing how foreclosure laws are, I don’t want to do time in the slammer. Illinois has some issues with buying a foreclosure, then renting it back to the owner. He even wants to help with the repair. I am leary of putting him in the title, but maybe him as trustee with me as beneficiary and director, may be the way to go. He is willing to walk if he has to though since its been a tough ride. My plans would be to wholesale it for a quick $10k. What should I do?
So would you say I can’t call the 2nd and 3rd lender, tell them we are headed for foreclosure unless they take a big cut, in which case we can send them the (discounted) balance due? I’d catch up on the 1st, take my cut, and use the remaining portion of the 116k to repair the house.
Is there some special demo team I would need for a fire damaged home? There is a church in town that has a recovery program that lets you hire out skilled ($15-20/hr) and unskilled ($8-10/hr) laborers. It was my plan to hire 4 of them for a week and bring in a bunch of dumpsters. Since the damage is done, is there any reason John Q Public couldn’t do the work? I understand about the permits. That does make it a pain.
Greg,
YOu can’t touch the $116k check if it requires the lender’s signature. They will apply it to the morgage and the funds would not be available for anyone to actually use.
If he can show you the check and it does not require the lenders signature, then you can start planning.
#1 see the check before you spend too much time working on how to discount notes.
I’d ask to see the check.
When there is damage to a property, the check is usually made out to the mortgage company and the homeowner. It would require the mortgage companies signature to cash the check.
I would NOT do a rent to own with the seller.
If the lender do take a short, they will not allow him to receive a penny.
IN all the fire damage properties I’ve done, I bought them for the lot value only. Demo is very expensive with a lot of unknowns. the buyer will need permits and a lot of inspections from the city. Any studs that can be penetrated more than 1/4 of an inch will have to be replaced. All electrical will need to be replaced.
If the lot is worth $25,000, you can probably sell it for $35,000 – even if it it is woth $155,000
He, his ex wife, and the 1st, 2nd and 3rd lenders are all on the check. If the house goes to foreclosure, the 2nd and 3rd will get wiped. I figure they are willing to do a discount rather than risk getting nothing. Or, do you think they will play chicken for a while longer and risk it?
It sounds like you are telling me to walk away from this one and keep looking for better, less complex opportunities.
Thanks Jackie. I think you were right the first time though. We would be buying the lot. I’d say no more than 5-10k. He almost had us laughing when he requested 50-60k. I should have said “15 to 16k? That’s awfully high!” But I dropped the ball. Like you said, you can’t help everyone.
The comps just don’t match up to the damage done. The insurance check (116k) has them replacing everything. Basically down to the studs, roof trusses coming off, underlayment under the tile coming up, all siding coming off, vapor barrier behind it, etc. We don’t want to be stuck with a house that looks great after the rehab, but stinks. File this on in the experience column.
Greg,
Ok – now you know what you’re dealing with. I was pretty sure that the check would be made out the the lenders too.
The homeowners will probably not get a penny of that $116k – so you need to forget about getting any of that money.What you need to negotiate is a deal with the lenders on how the $116k will be divided up so all lenders and that is ALL THEY WILL GET.
That leaves ZERO mortgage.
Then you can make a deal with the home owners to pay them a small ( very small ) amount so you can wholesale the deal.
Now that you know exactly what you have to work with, the negotiations can begin!
I would start with the 3rd. Make any negotiations contingent on the other 2 lenders and homeowners agreeing to the terms.
Let us know what happens.
Jackie
There is a huge demolition cost with fire damage property that needs to be factored in too. It cost money to get the bad stuff out and get it hauled away
Jackie
Greg,
Let him duke it out with the banks. Then follow up with him in a month to swoop in and buy the lot for cheap.
Jackie
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