My 1st deal, trying to buy pre-Sheriff's sale
I want to start small (though I have $20k cash to play with), found an 880 sq. ft. house on .72 acres, lake view, quite rundown but neighboring homes—across the street on the lake—are nice, probably $100K +. Sheriff’s sale is in two weeks. Search of court records yesterday owner found owner's July 2002 bankruptcy, tickets for DWI, speeding, NSF, etc. but no liens ex. mortgage. I knew of owner in high school 25 years ago, kind of a loser, may be untrustworthy His 23 y.o. son lives on property; he has a record too. $25k mortgage (on a note from previous owner, who’s foreclosing) from 1982, $16k still owed. This year’s taxes--$400--not paid. Assessed value is $30k. I want to approach owner, ask him what his plans are for property, ask to see inside of house, offer token $ (few hundred?) as incentive to sign Quit Claim Deed or Warranty Deed, then take over payments, with standard escape clauses, “and/or assigns,” etc. I want to rehab and flip. How’s this deal sound? Too many red flags? Any ideas of script I should use to help explain/persuade owner to sell to me? Thank you for any advice. I don't want to screw up my first deal!
Hi Loon,
This may work for you if your numbers are correct. Be certain that you do not use a quit claim deed, if they are interested in selling, make them sign a Warranty Deed (and even have it notorized).
Instead of taking over the payments, you may want to cash this mortgage out to get rid of the foreclosure, and go from there.
Best of Success!
BAMZ
Thanks, by "cash this mortgage out" do you mean offer to buy it from the holder at a discount, like a short sale, and get him out of the picture completely?
I'm curious. Why would you suggest that the homeowner execute a Warranty Deed vs. a QCD? A Warranty Deed requires that the Grantor warrants good title, including freedom from encumbrances including, but not limited to a mortgage(s), judgment lien, and accrued and unpaid taxes, and further warrants to defend title against all claims.
It's my understanding that a Warranty Deed is broader and better than a QCD, but with the granter of either deed in bankruptcy, would they really care (and would they be liable in event of problems) which one they sign? Or would the deed actually have to come from the one who holds the note, thus requiring his permission to buy out the mortgage and assume the payments? I'm starting to see how complicated even a simple deal like this can get!
Loon, I wasn't commenting on the particulars of your scenario, but rather I was questioning BAMZ's suggestion/advice regarding Warranty vs. QCD.
In either scenario, if the bankruptcy remains in effect, the conveyance is voidable by the BNK Trustee.
Frankly, I don't think a distressed homeowner has the capacity to grant a valid Warranty Deed unless the previously stated conditions exist (clear title, no encumbrances, etc.) I'm not an attorney. I was asking for clarification from BAMZ.
loon,
Let's point out the 'big' difference between a Quit Claim Deed and a Warranty Deed.
You are correct even if you receive a Warranty Deed this does not mean if something is wrong the the seller would be able to defend the Deed or even want to. However it is prudent to always get the Warranty Deed.
If you have done your due diligence albeit a preliminary title search then you will not have a problem with the Warranty Deed. In other words why take any Deed without knowing that you are receiving clear title or what liens or encumbrances are involved that you feel comfortable in taking care of.
A Quit Claim Deed only transfers an interest in the property, so in theory if the Seller gave a Quit Claim to 5 people including you then you will have 4 partners I am sure did not want.
The Quit Claim Deed is normally used in a Divorce situation where one spouse transfers there interest to another spouse.
You would need to talk with the Bankruptcy Trustee he can release the property from the Bankruptcy so you can take title. This is not as difficult as it sounds, just expain what you are willing to do.
John $Cash$ Locke
[ Edited by JohnLocke on Date 04/28/2003 ]
ShortSalePro,
The reason that I recommended a Warranty Deed rather than a QCD is because the QCD is only going to transfer interest. For those who are interested in having unknown partners, a QCD may work fine for your situation. However, my thoughts are to take a proactive stance and get a Warranty Deed. I am in no way expressing that with a warranty deed that you get clear title, as $CASH$ said, you will need to get title work to make sure that the title is clean.
And by the way loon, it is ok to go ahead and get a Warranty Deed signed/notorized to you at any time during the negotiations, you just simply would not record it until you had looked over your title work.
Best of Success!
BAMZ
Hi Loon,
When I suggested to you that you "Cash this mortgage out", I was saying that you should go ahead and get them out of the picture.
Being so close to the sale, it is not likely that they will short sale or discount, but I guess it never hurts to ask. Some investors may tell you not to mess with asking for a discount (being so close to the sale) and that it is a waste of time. Believe me when I say, that when you ask questions, and back them up with facts, you can make large sums of money.
Keep going - and Best of Success!
BAMZ
Isn't it important to know which state laws apply to the QC or Warranty deed?
What state are you in, Loon?
Thanks for your advice. I'm in rural northern Minnesota. That used to show below my name on these posts, but they must have changed the site somehow.<p>
I suppose I should talk to a lawyer. I haven't really found one around here who knows much about working with real estate investors.
Hi Loon,
If you personally know any local realtors, ask then who they would reccomend as a real estate attorney. If you do not know any of them personally, you may still call the local real estate office and someone should be able to give you a few good resources.
Also, you may call the local board of realtors and ask them for reccomendations of the attorneys that they use to re-write and approve the local MLS contracts for them.
Best of Success!
BAMZ
Bamz,
When you say"cash the morgage out" do yo mean wait for the foreclosure sale and bid or try to buy from lender ?
Hi LynLinz,
I wasn't referring to buying the paper to hold, but rather I was referring to paying it off completely to clean the stigma off of the title quickly and easily.
Hope this helps!
BAMZ