What to do with Sellers that have Option ARM’s

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  • Anonymous

    Hi Jack and Everyone at CREWealth,

    A lot of the distressed sellers I am coming across
    in Southern California have crazy Option ARM’s.

    One technique I am using is Lease Options to try and sell there properties to Tenant/Buyers.
    They have to have enough cash reserve to carry any negative.

    Any suggestions for other options?

    Most of the sellers I come across I have to walk away from, many will loose not 1 but 2,3 or more properties they bought in the SoCal buying frenzy.

    Simon White



    I bet I can guess exactly what happened with those properties in SCal.

    Someone bought them at a good price then as soon as it had some equtiy, they refinanced and pulled out all the equity they could (plus some)

    Wait a year or two, then do it again and again.

    So, the people who own those properties with no equity and ARM’s that are about to pop have already had their payday.

    If they would have kept the original loan on the property and not pulled out any equity, they would probably be ok now.

    Even better, if they would have bought with creative seller financing they would be in a much better positon right now.

    I think you’ll find that there are thousands of properties that have no equity ( because the owner already took it all) and an ARM that is ready to adjust and it does not make sense for the owner to keep the house anymore.

    If they are behind on their payments, you could try to negotiate a short sale. But the only way that is going to help you is if you have a RETAIL buyer lined up to buy the house immediately. You don’t want to buy these houses. The bank will rarely go less than 20% below the appraised value, so short sale deals are not good enough for keeper houses.

    You can probably get a better deal if you wait for it to be foreclosed on and buy at the courthouse steps.

    There’s really not much you can do to help the owners of these properties when they have already pulled out all their equity. They already got paid. Don’t make their problem your problem.



    The only person who came out a winner on these kinds of deals is the mortgage broker who make a fortune on refinancing the house again and again.

    It’s amazing to me that the mortgage broker does not have to give back at least some of their commission for each loan that goes bad.

    Often the mortgage broker will talk people in to loans that they cannot afford or with balances that the house cannot afford just so the loan balance will be higher and their commission will be bigger.

    Hopefully some of the adjustments in lending practices will prevent this from happening in the future.



    Yep 1 in 10 (or less) have any Equity.
    The SoCal cash machines have run dry.

    Many have re-financed several times even people that bought 5+ years ago are now facing problems.

    Lot of people re-financed into Option ARMs without understanding how they work. They can not refinance into a better loan as the lending requirements get stricter by the day so my Mortgage Broker friends tell me, so there is nothing they can do. Foreclosure looms for many.

    The banks are not discounting short sales too much yet from what I have heard, not tried myself.


    From Jack Miller.

    All the preceding comments are right on target, however, some relief is in sight because the government is beginning to lean on Sub-Prime lenders who are raising interest rates or calling in loans that will create more foreclosures. Countrywide and others have set up special divisions to do workouts with distressed borrowers. This doesn’t fall into the category of a short-sale. The borrower still owes the money, but the payment schedule is juggled to give some relief. If you can hang on, Southern California real estate has shown amazing resiliency over the past 50 years, and except for vastly over-priced houses, it will probably come back. Case in point is that when Clinton closed the military bases in 1994, prices in affected areas dropped by about 15% for about two years, then came roaring back to make up the losses in another two years. Those who hung on reaped fortunes when the boom hit. Finally, in some price ranges, sales haven’t stalled at all, in some areas. If you can sell your residence and move into your investment house, you can sell your house tax free and use the proceeds to support houses you can’t sell. What is negative cash flow in an investment house becomes cost of living in your residence.

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