Need Help - First Pre-Foreclosure Deal
I am a novice investor, though I have read a lot of the valuable stuff at this site.
I have found a property in NJ that is one month away from the foreclosure (NJ has three months from lis pendence for sherrif's sale).
The property is a SFH in a very good school district purchased by the owner in 1988 with a $200,000 mortgage. He got married subsequently and are now heading for a divorce. FMV for the house is $480K.
I want to act to aquire the property and the flip it. This is my plan:
Offer the owner to take care of his mortgage arears, get him to put the property in a land trust, transfer the beneficial interest to me at a pre-determined price (or may be a TBD selling price minus my cut), make the needed sprucing-up of the house, put it on the market at slightly below FMV for a fast sale. Assume current mortgage liability until it is sold (assume 3 months in the calculations for the price to me).
Can some senior, experienced REIs on this boad, please let me know if I am thinking stright here. I would of course have a RE attorney involved to make sure things are done right since it is my first time. Isit best to go for "Land Trust" way so that the potential buyer would not have problems with the mortgage.
Thanks for any help on this. I would be too happy to have an experienced REI be a mentor for this deal.
Bill
Bill,
Does the home need repairs? What I would do is to get the property under contract. If the estimated amount of repairs is $20K and the owner is willing to sell it to you for $200K, then I would get it under contract for $230K and have an addendum that says the seller credits back the buyer $30K in amount of repairs at closing. That way it is a no money down deal and you get cash back at closing. You would need a mortgage broker and title company (closing agent) to help you with this type of transaction. You can also get estimated of the repairs to show the extent of repairs needed. That's what I would do...
Tanya
Hey Tanya
Got a lead on a pre foreclosure in Brooklyn New York Property is being foreclosure by 1st has a 2nd as well. Here are the numbers
1st
SFR/ Rented with tenants not making payments
FMV- $220,000
OWES- $166,000
PITI- 1,498 AT 9.5%
The $ 166,000 would be the payoff amount. If we wanted to bring the mortgage current we would need $23,000. Which is pretty hefty for a tenant buyer to place on a lease option.
2ND
OWES- $23,000
PAYMENT $250 PER MTH AT 11.00%
IN ON THE PROPERTY WITH BOTH LOANS $189,000
I know the numbers are tight, but I feel we can play with this. Any suggestions on what strategy to use.
I would think I can most definitely try a short sale here. Owner says 2nd had mention to her they would consider that.
I also figured maybe I can just put a option to purchase on it and market the property as owner financing and try selling it to a retail buyer , but time might be a factor with the owner just filing for bankruptcy.
She wanted to slow the foreclosure process to see if she could get anything done to get rid of the home. I also feel I can go sub 2 or land trust, but not sure if that is the way to go.
So any ideas on best getting this deal done. I would appreciate any advice or suggestions.
I have a meeting with the family that is renting the home tomorrow to look over the property.
The owner lives in South Carolina she left New York about 13 months ago.
Best Regards,
eliteprops
Thanks Tanya for the reply.
I have seen the house from outside, it is in a very good neighbourhood and does not look like it needs repairs. I am sure though, that it may not have been kept in the best shape for a quick retail sale - thats why I would keep some amrgin for sprucing-up.
I would be very surprised if the owners takes a $200 - $230K offer. The house is worth $480K. I was thinking more like a $380k - $400K offer. Am I too off-base here?
Also, could you please comment on my strategy of "Land Trust"?
Thanks again. I appreciate your help.
I'm not aware of any county in NJ where homes are exposed to Sheriff's Sale 3 months from lis pendens.
While it's true that the backlog has been reduced, there are too many roadblocks that the homeowner can throw in the way to impede the mortgagee's pursuit of Sheriff's Sale.
I once had a Client who successfully avoided Sheriff's Sale for 11 years while in foreclosure.
Bill,
I just gave an example. I wasn't expecting the owner to take $230K, but you never know...
You can do it the land trust way, you pretty much have the concept. Just make sure the lawyer you use understands what you are trying to do and are open to helping you do it that way. Also, you might want to consider doing an assignment of contract. In this way, you would get the house under contract with "and/or assigns" after your name as the buyer. Then if you can find a new buyer, then you can assign the contract to them for the new price and you keep the profits from the difference in the two purchase prices. You will also need a good closing agent who can help you with this. Good luck.
Tanya
Tanya . . . Thanks again. After re-reading your earlier comments, I realized it was an example. And thans for the "assignment of contract" concept - frankly, I had not thought of it at all. Thanks for your valuable inputs.
SSP - My understanding was that in NJ the period is 3 months, obviously I am wrong . . .could you please elaborate on the process in NJ and the time periods if you dont mind sharing the insight.
I however dont think this owner is interested in prolonging the ownership . . .in fact my initial phone call (it was with the lady, not the owner) indicates that he is not in town anymore and they are keen to get it off their back. I guess some understanding for me re. the time period available to them would help me with the negotiations with them. Thanks again.
Just wanted all interested to know that the deal fell through . . . the owners want to sell at FMV though were ready to hold some note for a short period - thats not what I wanted to persue.
Hi ,
I am a newbie, can someone explain the benefit of transferring the property to "Land Trust" ? Why can it simply not be transferred in the name of the buyer ??
Can any Senior Investor please explain ?
Thx
QM
QX:
NICE to Meet you!
To answer your Q.---
No it Doesn't have to be a LAND Trust to resale it (unless the Owner is doing a Shot sale)...
If you and a Seller agree to a MAV )(mutually Agreed Value) for you to dispose of the Property at...then you could add your lien either as a:
- 2nd Mortgage
or
- 3rd Mortgage (or even place a)
- UCC Filing
against the Owner's Title and to which
you'll be paid as a creditor (for your Profit) upon the closing by the New Buyer w/o title transfer issues from the New Buyers Lender.
This method, as well as Land Trusts, helps to avoid the new HUD RESPA restriction on Purchase Mortgage Originating on property NOT Having Title-SEASONING.
SS PRO:
Did you and I both have the same client?
Was it a woman in Chicago???
I had a woman come into my mortgage office looking to refinance her $650K home. She hadn't made a pymt in over 13 Years.
She also owned Three (3) Burger King Franchises and 2 KFCs.---Incidently none of her franchise agreements had been paid on in over 5 years...
I ran her app past some of my investor lenders and they pulled my coat-tail about the FBI investigation she was under...And SURE E-NUFF I got a call from an Agent about her, they req. a copy of her 1003 + docs she submitted.
Needless to say I closed her file ...heared a little later from an underwriter I know that she DID GET FINANCED, lost the KFC but still has BK franchises???
I'm still BLOWN AWAY as to Exactly How'd She DID IT???
Sorry I got off topic but it really amazes
me as to how some people know how to work (SCAM) the system and still come out on top!?!
QX, I hope the previous stuff I wrote helps!
Derrick Ali
Derrick,
Thanks for the detailed information (Although I admit I am going to open a Realtors Glossary now to understand the terms you used...like HUD RESPA, UCC ....)
Anyway..part of learning.
Thx again
QM