Pre Foreclosure Deal
Hey gang...I am in the process of learning, learning and more learning. I was reading about a pre-foreclosure deal in one of Russ Whitney's books, but I did not quite understand.
Pretty much, the investor stated he went to the homeowner who had a house (about to be foreclosed on) valued at $175,000. They offered what was owed on the house( $155,000) plus to pay the owed back payments ($9000) and also to pay the homeowners $1000. The homeowners accepted. The loan stayed in the homeowners name, even after the deal accepted.
My question is this:
Why would the homeowner agree to keep the loan in their name with the hope that this investor will pay it on time? What happens if the investors want to re-finance? Is there a closing, or just an agreement, written or otherwise between the investor and the homeowner?
Is this type of deal done often?
Thanks in advance.
Brian
In the situation you described all of the deals like that, involved the house being put in a trust where the investor was the beneficiary.
Lori
[addsig]
Lori,
is it a difficult sell to get the homeowner to agree to let you maintain the current loan? Would this be a good strategy for someone in the process of rebuilding their credit?
What percentage of pre-forclosure deals are done this way....and is there a specific name for it?
Thanks for you help.
Brian
P.S. I sent you a PM
There can be a closing but usually just a signing of the deed and a check sent to the mortgage company by the buyer. Please do a title check to make sure the owner even owns the house and does not have any other liens against the property. If the investors wants to pay off the mortgage ater they may do so. They usually get a paper signed at the deed signing giving them power of attorney or permission to receice information re the loan. There are plenty of posts in the sub2 forums to help you understand this a little better.
Good LUCK and Thank You
Hope this helps some
Ted Jr
Thanks Ted...I will definitely keep reading up on it.
Brian
Yes. To answer your questions it's called a subject to deal. This means the deal is done subject to the existing financing. Why would the owner agree to this? They will lose their house and money if they don't. Is that motivation enough? If they don't work with an investor this may happen. They haven't been making payments and they will lose the house. If the investor doesn't make payments what's gonna happen? They will lose the house. Now why would an investor NOT want to make the payments knowing that we make our money on the back end when the loan is paid off? I hope that clears some of it up.
Ryan J. Schnabel
Usually, they won't buy the house, and pay the reinstatement. Either one or the other.
Myself, I'll either reinstate the mortgage so its up to date, and pay off all the liens on the house. Then do a quit claim deed, putting the title to the h ouse in my name, but the loan in the theirs. In about 3 months, the bank will call the note (meaning they want it paid) so I either, pay it off in full, take out another loan, or have the property sold.
Thanks for all the responses.
Would the bank call the note because the title changed names? Do they automatically find out when that happens. I wonder why the bank frowns upon an investor taking over the loan. On another note, does the rate that the homeowners (the ones being foreclosed) are financing at play a factor in determining whether or not to do a subject to deal? For example if they are doing a fixed rate at 7.5 %, would that make you shy away from it? Thanks again.
Brian
Quote:
On 2004-02-16 21:17, suntzu18 wrote:
Thanks for all the responses.
Would the bank call the note because the title changed names? Do they automatically find out when that happens. I wonder why the bank frowns upon an investor taking over the loan. On another note, does the rate that the homeowners (the ones being foreclosed) are financing at play a factor in determining whether or not to do a subject to deal? For example if they are doing a fixed rate at 7.5 %, would that make you shy away from it? Thanks again.
Brian
Basically what you are doing is "quietly assuming the mortgage. the reason to do a deal by sub 2 is to avoid having to deal with getting financing and qualifyoinging etc.. My expireince has been that the bank will not call the note unless you do something that will cause a red flag to go off. As long as the loans are getting paid it should be a concern. I set up all my sub 2 deals as I am new prop mgr on property and clear through the bank all payments will be coming through my co. Hasn't caused any problems yet. Hope This helps!
Well, Brian.
This arena can be very complicated. Many might dissagree with me but then again there is not a single question on this site about a cash transaction, if there is I have not seen it. That is why I personally am a cash buyer and a seller financer.
However if you go to the Subject 2 forum you will find many topics on it. the longer you read the more questions you find answers to and some that will be created. Im with you, it doesnt seem logical for seller to agree to such a thing but they do.
[addsig]
Wheeler Dealer is doing the most simplified of the subject too transactions. But he buys the property and is on title. The return on his investment funds I think approach the return on flooring car paper. He has taken a page out of auto finance and applied it to real estate. Now that is thinking out of the box.
Cheers Lucius
I don't know. Call me crazy....but who would get involved in this deal ? Russ Whitney maybe...
Seems like everyone has pointed you in the right direction of what happened in this transaction, but as far as whether someone would do that exact deal...well...I'm sure there are a few takers out there, but I wouldn't.
Not nearly enough cushion for me. That $10K of "equity" is pure air. You need to KNOW in your heart what your numbers are.
Besides 175K - 6% commission is less than 165K ! You're giving them more than FMV if you ask me.
Just my thoughts.
Yes, do these types of sub-2 deals. that's fine. No, not these measley margins.