Dangers Of This Subject-to Deal?
Here's the deal that someone brought to me:
-person is in foreclosure, $85k payoff or needs about $6k to bring it current.
- they DON'T want to lose the house -they want someone to buy it and then sell it back to them on land contract or lease option and buy it back/refi in a year
Appraisal was done in December for $135k.
I thought about doing it subject-to, but my thoughts are that if they are not making their monthly payments to me, my only remedy would be to let them go into foreclosure again, as I wouldn't be able to foreclose myself(I only would have a deed to the house, not the lien). So, I could potentially lose the amout of money I would pay to bring the mortgage current.
Any suggestions/comments are welcome. Thanks
-Michael
If they can't pay their mortgage now, what makes you think they'll be able to make the higher payments from a lease purchase? Sounds to me like they just want to get out of debt without making any sacrifices.
Buy the house from them and help them get an apartment.[ Edited by KittyLitter on Date 03/30/2004 ]
Don't have an answer for you, but I am intersted myself. As, here in S. FL we are competing with everyone for properties, including mortgage brokers who come across these situations, and make a killing on some of them. I'd like to know exactly how (contractually), safely....I know one that just tacked on 10K for the service of saving the house and eliminating the owners headaches, and took their car title as security/collateral for his interest in the back payments.
A question though: 6K on an 85 loan? How long have they gone without paying? Unless some of that 6K includes some sort of legal fees, it doesnt sound like they are very motivated to try and keep the house.
SG
The question was whether this situation can work, not how to do it otherwise. These people want to save their house, not to get a rental. They could SELL it now and pay off the mortgage, but they do want to keep it and stay in it. Their claim is that they tried to start a business and failed, so now they're back in the workforce. They will have money available to make monthly payments, but they don't have the money to bring the mortgage current.
-M
I agree with Kitty Litter 100%. Take them out of the equation. If they're not paying, find a way to buy the place yourself. Maybe they can buy it back later. Based on your #'s/equity available, you have an opportunity there.
If you dont take it, someone else will (and make around 40-45K on sale and all is said and done) Of course this depends on many factors: property condition at this point, market conditions in your area, and ability to turn over quickly.
Bottom Line....The buyers wont likely pay you without some headaches. However, The property will pay you just fine!
SG
Easier said than done. Can't take them out of the equation = they have equity in the house and have a primary goal of KEEPING the house. Believe me, if I had a chance to take them out of the equation, I would.
OK, Sorry Michael.
Sounds like you really want to help them keep the place, as they've had some hard times. Depending on what they can afford, it sounds like your deal would have to be structured in their interest, rather than yours as an investor, for all to work out well for them.
Dont have answer to Sub-To...
SG
If the people are unwilling to move from the house and cannot make the payments let the house go back. After the foreclosure buy the house from the lender. The other alternative is to give them some of their equity to purchase the house and they move. If you do this do not give them any money until you get the keys to the house (cash for keys).
Michael,
Here is how it works. If you take the property Subject To you will own the house as the Deed will be in your name.
You would have the sellers sign a note to you for an agreeded upon price, now you can foreclose on them an remove them from "your house" should they not pay on the note to you.
I doubt they will pay you, however you can still wind up with the house and the equity involved with it. So the down side is if they do not pay you will have to remove them from the house.
If you have the credit to purchase the property youself, then you could do it this way and sell back to them on a Contract for Deed, here again if they don't pay you would have to foreclose on them.
I would think however since they are only trying to save their house a Subject To deal would work fine.
I personally have never had to foreclose on anyone, U-Haul money has always worked both ways buying and evicting.
John $Cash$ Locke
John,
Thanks a lot for the info. I forgot what state you are in, but can you please tell me if you are in judicial or non-judicial foreclosure state? I am thinking that in non-judicial foreclosure state your scenario would work just fine, but I might have problems with it in the judicial state. I mean, if I take the house subject-to, the mortgage is still in their name, so I really can't think of them giving me a note for the amount that exceeds the equity in the house. This would've been an easier deal if they wanted to move out, but they want to stay in the house. Anyway, your replies and comments are appreciated, as always.
Michael,
Whether you are in a Judicial or Non Judicial state if makes no differcence, I have found that I can get people out of the property without having to go to court, the secret is U-Haul money.
But lets look at your deal, if you have to foreclose you still have plenty of equity so if it takes a while to get them out so what, I don't think it is going to eat up $30K in equity you will have when they are gone.
The price you set between you and the sellers will have to be an agreed upon price between the both of you, whether it is for the full appraisal price or portion thereof or more.
This is where the art of negotiation comes in, but remember they are the ones with the pain and you are the one who can provide the cure, see what the cure is worth to them.
Whatever price you arrive at it must be favorable to your side of the deal, as surely you will be taking the house back sooner or later in my experience.
John $Cash$ Locke