Dealing With A Homeowner Bankruptcy
I found a home in Foreclosure and developed a good relationship with the homeowner, but I couldn't close her (Rookie Mistake). She was in denial and wouldn't accept any offers we made. The day before the auction she called me in tears and then ran out and filed Chapter 13.
Here are the numbers: 1st = $55,000; Arrears = $4000; Repairs $10,000 (Fat Estimate). House next door closed yesterday for $105,000 and is smaller and does not have a 2C GAR. We offered her $75,000.
I don't want to lose this deal for 2 reasons. The #'s above and her mother who lives down the street wants out of her house so the they can combine households/incomes.
1. What is the best approach with the Daughter in Bankruptcy?
2. Is Subject To still possible or will she have to liquidate?
2. What is the best way to take the property at this point, if I can get her to accept an offer?
The rookie would appreciate any help possible from one you Senior All Knowing Guru's.
Thanks In Advance
Here are the numbers:
1st = $55,000
Arrears = $4000
Repairs $10,000 (Fat Estimate).
House next door closed yesterday for $105,000 and is smaller and does not have a 2C GAR.
We offered her $75,000.
1. What is the best approach with the Daughter in Bankruptcy?
You can explain to the daughter that if she follows through with the bankruptcy proceedings, then she may still lose her home in the foreclosure auction. It will only stall the foreclosure sale date, but it will not stop the foreclosure unless she can make payments (which is unlikely).
Also, bankruptcy will stay on her record for 7 years and will make it extremely hard for her to get back on her feet and acquire a new home loan.
2. Is Subject To still possible or will she have to liquidate?
It is possible, but do you have the money to bring the mortgage current? You have to factor in the arrears, reinstatement fee, and any legal fees incurred.
2. What is the best way to take the property at this point, if I can get her to accept an offer?
I think the $75K offer was good. Don't go pay more than your offer. You may want to read Bill Young's articles called Using Financial Judo Series (Part 1 of 2) and Using Financial Judo Series (Part 2 of 2).
You can convince the daughter that there is not as much equity in the property than you both think. Your offer is $75K is the best you can do because you're not going to make a lot of money.
An example:
Assume the property is worth $100K. I'm estimating by percentage of the purchase price.
Bring the mortgage current: 5%
Repairs needed: 10%
Realtor commission: 6-7%
Holding cost: 3-4%
Total costs: 25% of purchase price
Explanation of the percentages for realtor and holding costs: to resell the property you may hire a realtor, which will cost you 6-7% and it usually takes a realtor 3-6 months to sell the property, which may cost you 3-4% holding the property.
So in essence, you are convincing the daughter that $75K is a good deal. Your offer of $75K is the best you can do because you are not making any money off of this....you are helping them out of their situation. I hope this helps. Read Bill Young's articles on using Financial Judo, it's very interesting.
Tanya
tanya,
Great advice and thanks for refering me to the article!!! I appreciate the reply!!!