*Hawaiian Beaachfront High Equity Foreclosure - Newbie Needs Advice*
Hi all,
I've only been a member of TCI for a few months, but managed to do 2 wholesale flips without problems. But this one is a doozey......hopefully someone here can help me sort it out....
Seller contacted me at first, hoping for an outright sale of a 1+ acre property with 100 ft of sandy beachfront, overlooking clean water and one of the nicest views in Hawaii....no joke.
When enough details didn't match, I finally asked him, "Are you going to tell me the REAL problem here, or should I just read about it in the foreclosure section later?"
He finally admitted that he was in deep trouble, and delinquent on a 2nd mortgage balloon, because he had been misled about the term of the second, loaned to him for the purpose of building a new house on the property. (which he did)
The property is 3 houses- 2 duplex units, all rented, and bringing in (according to seller) about $6500 per month......$1300 each. The monthly payment on the 2 existing mortages (again, according to the seller) is about $3300. The first mortgage is $435k which is current. The second mortgage payments have continued and is now $175k. Hawaii is a "non-judicial foreclosure" state. But the foreclosure pendancy action has already been filed and NO foreclosure action is found with the County Clerk or local papers since then. (Non Judicial foreclosure can take a little as 4 months in Hawaii)
Now, the Hawaiian STATE tax appraisal of this place is over $1 million dollars and for those of you not aware, the RE market has NEVER been as hot as it is right now out here. NOTHING is selling for it's tax appraisal value and one of my flips sold (in a different area) the FIRST DAY!.......lol......I had 4 offers and it sold higher than my LP!
In asking around town, the attorney who owns the second mortgage is known for crooked deals where the owner loses their property because of "misunderstandings". He WON'T ALLOW a 3rd mortgage to be added to the property so the seller (who has a 680 credit rating and has made ALL payments to everyone except the 175k balloon) can get a loan to pay off the balloon.
There's probably $600k in equity in this property!
The seller has tried to pay for a independant appraisal but can't get a lender to accept his numbers because nothing of this size has sold in this area. (I'm intentionally being vague because I'm the only one who currently knows about this deal, outside of the principals)
The seller's BIGGEST PROBLEM according to him, is his credit being ruined by allowing this foreclosure to go to sale.
My questions are:
If I want to take the chance and take the deed, pay the 175k myself, how do I determine the real market value with no similar comps? Will I have to pay the commercial (5 units and up) appraisal fees myself, just to get a loan? (which are $2500 and up) What kind of lender would find this deal attractive?
Does the lawyer/ 2nd mortgage holder HAVE to release his interest to whomever pays the debt off? (my GURU tapes indicate that the mortgage holder doesn't have to accept payments, once the terms have been violated.
Does anyone know a Hawaiian RE attorney who is COMPETANT with trusts and RE law, and can handle a complicated and adversarial case like this? (I've paid a small fortune to local lawyers for past matters, and found that big retainers don't mean competent representation)
If I had as much experience as some of you, would I be looking to do this deal at all with the big delinquency and looming legal problems.
Thanks, and I'll try to answer any questions I can, without giving away enough details to compromise my edge in this deal.
BB
Forgot to mention..... this is NOT a "war-zone" property. Hawaii has war-zones just like anywhere else, but this is not one of them.
It's safe to walk the street at night with no fear of problems at this location.
BB
BeachBum:
First of all, it sounds like this attorney is trying to pull off a scam! Before you try to purchase the property, I would make sure you have clear title. Then what you could do is get the deed, pay the delinquent amout on the second and when the foreclosure is released, record
your grant deed. You could also get the deed and refinance the first and the second. You could also get the deed and find a mult-millionaire to flip it to and have them pay cash for the property.
In terms of the appraisal, try contacting
some lenders in Hawaii that specialize in luxury homes. Sounds like you have a good deal here. You might also want to consider asking the present seller if they
want to go partners on the deal and you
under the conditions that you will pay the
balloon payment and resell the property.
You could also put an add in the paper looking for an investor who will pay off the second based on a personal guarantee of equity in another property that you own. Be creative and make it
work.
Best Riches,
Jeff Adam
P.S.- Do you know why sharks dont attack attorneys????
ans- professional courtesy!
_________________
"The only place success comes before work
is in the dictionary."[ Edited by JeffreyAdam on Date 04/10/2004 ]
Hi Jeff,
There's no question that the attorney who owns the second is trying to scam the owner/seller.
The question is, do I want to put myself in the gunsites of the crooked attorney? That's why I'm asking for experienced opinions here first.
I'm a newbie so I don't have a "dream team" yet, but this property has such potential, I can't bring myself to just give up without an effort.
I'm fairly sure the title's clear because although I haven't paid someone to do a title search, I have looked at the city tax rolls and court cases and they don't show any surprises.
Thanks for the note and here's a lawyer joke back at ya!
Q: What do you call a lawyer gone bad?
A: Senator
Mr. Hawaii:
You dont have to put yourself in the gunsites of an attorney. Why dont you beat the attorney at his own game and take title in the name of your trust. Very simple process. If there is that much equity, who cares about the attorney.
I would start by reading the loan documents and then contacting the attorney on behalf of the seller. Who knows, he may not even want the house.
I still think you have a great deal if the numbers are what you say they are. I would verify accurate title, you could even buy title insurance without going thru a formal escrow. I would then contact the attorney and see if he is willing to discount the second. If not. You could have the seller grant deed you the property into your trust and refinance into
one loan. No problema!
If the attorney gives you any slack, have another attorney contact him and tell him you are going to contact the BAR on his business practices. If the loan documents show anything illegal by the
Department Of Real-Estate, you could contact the attorney and tell him you are going to report him to the State Attorneys Office, District Attorney for fraud, Department of Real-Estate and BAR Association. That should scare him.
There is no reason you should not be able to come in and have the seller grant deed you the property and payoff the second! Like I said earlier, do it in your
trust which will hide your entity! If you need a Land Trust Form, I will fax you one to help you out. You just simply tell the seller to grant deed you the property
to the 123 Main St. Trust dated 5-1-04,
John Doe Trustee. You then file the grant deed and keep a copy of your Land Trust
Form in your filing cabinet. And guess what, if anybody needs to contact the trustee, they are at a P.O. box on the mainland or out of state!
Best Riches,
Jeffrey Adam
[addsig]
The Islands as you know are a small place and everybody knows everybody and nothing happens of a legal note that is not known in the legal community.
As to the proper atty. I would call your real estate Commissioners office and get a recommendation. I would play partner with the existing owner and bargain for a larger share. I make the assumption this is on Oahu. If it is the big island or elsewhere each is as you know a little different. Different players.
If the atty on the second has played this game before I am sure it is common knowledge and I would not worry about future events. I am sure most people have his number. Just go for it. check your title with care. He is required to accept any legal and proper tender. Enjoy.
Lucius 8-) [ Edited by Lufos on Date 04/11/2004 ]
Quote:
On 2004-04-11 02:33, JeffreyAdam wrote:
You just simply tell the seller to grant deed you the property
to the 123 Main St. Trust dated 5-1-04,
John Doe Trustee. You then file the grant deed and keep a copy of your Land Trust
Form in your filing cabinet. And guess what, if anybody needs to contact the trustee, they are at a P.O. box on the mainland or out of state!
Best Riches,
Jeffrey Adam
Jeffery, wouldn't this be an invitation to have "fraudulent conveyance" problems, since the the pendancy action has already been filed? (last month)
The seller HAS a living trust holding the property, but the attorney who drew up the trust, used his name as the trust name, made him the trustee, AND the beneficiary.....lol..........
I'm trying to find out now, who knows the beneficiary name besides the seller and family, because it's possible that I might be able to have them reassign the beneficiary to a different name family member, then take it into a trust from them.
But here again, I'd want a competant attorney in on the transfer, and every attorney I talk to about land trusts meets my inquiry with a long silence or blank stare.
Unlike much of the carefree trust discussion you read around TCI, this one will PROBABLY wind up in court and all the trust theories tested, so I want to be right every step of the way.
BB
Quote:
On 2004-04-11 03:42, Lufos wrote:
The Islands as you know are a small place and everybody knows everybody and nothing happens of a legal note that is not known in the legal community.
As to the proper atty. I would call your real estate Commissioners office and get a recommendation. I would play partner with the existing owner and bargain for a larger share. I make the assumption this is on Oahu. If it is the big island or elsewhere each is as you know a little different. Different players.
If the atty on the second has played this game before I am sure it is common knowledge and I would not worry about future events. I am sure most people have his number. Just go for it. check your title with care. He is required to accept any legal and proper tender. Enjoy.
Lucius 8-)
<font size=-1>[ Edited by Lufos on Date 04/11/2004 ]</font>
Hi Lucius,
lol........it sounds like you've spent some time out here..........a very small place it is, and you're absolutely right. Not much happens without everyone knowing about it.
I've spent a pretty good chunk trying to find good legal help out here but so far have been unsuccessful. I had an IP (intellectual property) matter that I REALLY needed to get right, so I asked every attorney who would answer the phone, got the single most recommended name and hired him for a $5000.00 retainer, $350/hr and all the padding he could think of............long story, short, I got the wrong advice from him and had to go all the way to Philadelphia to find a guy who won the case handily for me.
The Bar doesn't give recommendations out here but the service they refer to, does. However that service simply randomly selects the recommendations from those who submit their name, and they're willing to tell you that they have no idea how good anyone is.
I'm sorry.......this is turning into a vent, more than a plea for information. I'm going to have to "hit the bricks" Monday morning and see what I can dig up.
I'm so nervous about this deal, I can't think straight. It's the biggest REI I've ever attempted and it's scary to think that it could succeed.....lol.......There but for the grace of God go all of us.
Thanks again,
BB
I'm sure someone else will clarify this, but I don't see the need for any "fraudulent conveyance" concerns. When I hear this term I usually think of a homeowner selling the property and declaring bankruptcy. Fraudulent conveyance is a legal term that means that the seller did not have the right to transfer the property to you because he/she was defrauding his creditors who rightfully should have gotten equity in the property.
Unless I'm misunderstanding something here you'd be paying off the creditors so there's no cause for concern.
Good luck on this one.
Ryan J. Schnabel
Ryan you took the words right out of my mouth. BeachBum, you are making this
harder than it has to be! This is not an
uncommon deal. It happens all the time.
Take my advice and you will be fine.
Best Riches,
Jeffrey Adam
[addsig]
take out a loan for God's sake! The second can NOT disallow a third lien. he DOES not own the property - the owner owns the property he is only in second lien position.
pay the baloon, report the guy to the authorities and sell high
Ok,ok.....(grin) I get the message, but I'm in a holding pattern again. I talked to the seller this morning and he is trying to get financing (this is his 3rd attempt, mind you)
He sounded hopeful but wary.......He's already gotten to the "approved" stage 2x before, but because of the valuation problem (see original message), unable to get the deal funded.
I also found out that the $175k amount of the 2nd mortgage has now grown to $240k, just in lawyers fees and other padding.
Like my GURU tapes advise, I'm trying to prepare my exit strategy in advance of entering the deal, so that I don't take a "seminar" on this deal.
Thanks for the encouragement 8-)
BB