Leasing Back To An Owner In Foreclosure
I have had a pretty good response rate to letters that I have mailed to homeowners in foreclosure. It seems that most of the people that contact me want to remain in the home. I have decided in some cases to lease the property back to the homeowner with an option for the homeowner to buy the property back at some time in the future, say $25,000 over what I have paid them for the property (on a property that I paid $100,000 for). This works well when there is equity in the property. My problem is pulling the $25,000 out of the property on the front end. I can get 100% financing. I have been told to inflate the purchase price and get the seller to give me the check at settlement but My attorney said that this is fraud. What I'm thinking is to buy the $100,000 property for $125,000 and then get a large, non refundable deposit (say 10,000) towards the future purchase as well as a $15,000 payment for option consideration. Or maybe $15,000 in pre paid rent. Has anyone been doing this and if so how do you legally get the cash out of the deal. I can wait a year to pull the cash out but I want to eat today. 
Thanks,
Bill
Your attorney is right, and your username reflects your attitude towards these deals I think.
You got fraud written all over your thoughts, and I think you are asking for big trouble. Who the he11 is going to pay $15k in prepaid rent??? Did a guru tell you to do that? I don't think that is going to happen in the worst buyers market, let alone NJ.
You talk of buying the property at an inflated value, etc. - not sure you will make a lot of fans on this site. Plus, renting back to people in foreclosure is asking for default all over again...
Dave,
You Said
"Your attorney is right, and your username reflects your attitude towards these deals I think.
You got fraud written all over your thoughts, and I think you are asking for big trouble. Who the he11 is going to pay $15k in prepaid rent??? Did a guru tell you to do that? I don't think that is going to happen in the worst buyers market, let alone NJ.
You talk of buying the property at an inflated value, etc. - not sure you will make a lot of fans on this site. Plus, renting back to people in foreclosure is asking for default all over again..."
First of all the user name is a reflection of my real name. Bill Care. I added the "less just for fun. Sorry that it offended you. I know of someone who did pay a years worth of prepaid rent but that is irrelevant. Don't know any Gurus but If you are one I'm glad we met. I don't think you understood the scenario. I am not buying at an inflated price. I am buying well below market value. I couldn't "careless" about making fans on this site. Just looking for advice. Lastly, If the tennant defaults, I own a property that will appraise for about 65% over what I paid for it.
Here's the real deal:
I send a letter telling the homeowner I can help them possibly stay in the home. I tell them I might be able to help them. Then I actually try to help them. In the actual scenario I am buying a property for 62,000. The homeowner / tenant has agreed to purchase the property back from me in 1 year for 80,000. The appraised value is 105,000.
Her problem with buying the property is two fold. Saving the deposit to buy back the property and staying current on the rent. My thinking was that if I really want to help her, and get my cash out up front, I could buy the property from her for 80,000. Sell back to her for 98,000. Apply some of the 18,000 cash the seller is receiving toward the rent (keeping her current), apply some of the cash toward the down payment (so she doesn't have to save it) and let the monthly payment all go towards the down payment. This helps the homeowner buy back the property and I make 18000 (less costs) with no money down. By the way, she was 1 week from the sheriff sale. I can wait until I sell the property to take out my money if I have to but I am asking if anyone has done anything similar or if this could be construed as "careless". It seems to me that I can do as many of these deals as I can handle. I understand that a default could be a short term problem but in the long run it seems that that would be the best thing that could happen to me.
Bcareless,
The real problem with what you're doing is that you are breaking usury laws. Look it up but it basically says that because you are buying the house and optioning it back to the former owner, you are in fact giving them a loan at an interest rate that breaks the laws of usury. It's not suprising to me that your attorney didn't warn you about this fact because I used a lawyer to close on a house who was also a REI and they told me that they do the same thing (then I was suprised). When I told her she was breaking the law and that if the previous owner was smart they should get an informed attorney and take their house back she was dumbfounded.
I know that many investors with years of experience will tell you that this is what they do but a quick and easy check by a lawyer with intimate knowledge of usury will tell you the same thing.
It's tough going up against uninformed investors like this because they tell the previous owners exactly what they want to hear- who's offer do you think is going to be accepted? The real problem is that all it takes is one informed previous property owner to completely make a mess of your life or business. Who knows maybe your competitor will tip them off?
An analgous article on the subject can be found here:
http://www.oag.state.md.us/Press/2001/1107c01.htm
Quickly read the last line. Fairly stiff penalty, huh?
Hello folks, I'm a newbie to lease option investing and was wondering if there IS a legal way to keep the home owner in their home using creative REI techniques.
Everyone is saying that Bcareless can't do what he suggests (Sell + lease back with option to buy). So, IS there a way that the owner can keep property?
How about reinstate the loan and put try to do a forebearance agreement with bank to put whatever amount is needed to reinstate on the back end of the loan? I doubt the bank would do this tho'. Also, the time frame you mention(a week) will probably not give you much time to negotiate with the bank. How do you make money LEGALLY? Charge a consulting fee.