A Pactrust ™ Deal Part (1 of 5)
I received a call from my partner’s bandit sign (“I Buy Houses, Full Price, All Cash or Terms Any Condition, Any Price”)
The caller is a Mr. Sam Brown who says he has a house in Mission Hills, Ca. that is worth maybe $150,000, but which has a $154,000 loan on it and work to be done. I ask him “what he would like to see happen.” He says he is just looking for someone who would take over his payments. I then ask how much work needed to be done. He says maybe $10,000 worth. My comment is: “Phew Doggies!”
Next, I ask how far in arrears his payments are. He indicates that they are current…for the moment. I then ask what he would do if I were not able to help him. His comment is that he just wants to walk away, and that he has no cash and will not be making any further payments, irrespective of whether I take the house or not.
I tell him I'll call him back the next day after checking the title and getting some comparable value information together (comps). The comparable sales in the area show the property to be worth perhaps $155K to 160K after fix-up (still no equity for me).
March 15:
I call Mr. Brown and arrange to meet him at the property that same day.
After seeing the mess (broken windows, a yard full of trash, weeds up to the windows, windows frames that didn’t meet the walls, peeling linoleum on the floors, dry-rot and termites), I comment to Mr. Brown that I can see that he is truly in a pickle on this one...he agrees and reiterates (in case I didn’t hear him the first time) that he has no money and has no choice but to let it go back to the bank if I don’t want it.
After inspecting the house, I determine that actual costs to bring the property to a reasonable cosmetic condition (with good, but cheap, labor and parts) might run no more than $6,000 to $7,000. I reason, as well, that by keeping the loan in place and asking for $10,000 up front from a resident co-beneficiary on a 50:50 equity share, I can get all the work done and perhaps have a little left over. I figure I can advertise it at $165,000 and perhaps be able to start out at break-even (without cash out of pocket) and with a couple thousand in my wallet.
Tune in next week when we find out more about working with a Pactrust™.
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