?Legality of L/O to fefault owner?
I have read a few posts that mentions that it is illegal to short sale a home from a home owner in preforeclosure and then turn around and L/O it to the same individual. Does this have any truth?
I need an urgent response becasue the sale is on the 25th of this month and I need to act quickly.
Thanks for you assistance in this,
Jorgan Cattin
I read if you do that a couple times they get you for racketeering charges like you were a mobster or something.
I'd call my lawyer on this...
What if I were to rent it or lease it, with no option to buy?
There is a single woman living there and she has almost 80% equity I could make a killing, but I dont want to kick her out of her home. And I know a 60 year old woman has no shot at qualifying for a mortgage, and it wouldn't help any if I just dropped it and let her go through the whole process. She isnt even trying to sell it. Will a bank short sale a house with 80% equity?
Your help is very much appreciated,
Jorgan Cattin
Mr. Cattin
Sorry for the long delay!
These articles should get you up to speed on the basics short sales
http://www.thecreativeinvestor.com/modules.php?name=News&new_topic=20
jcattin:
You have to make sure you structure your sale/L-O correctly or the owner (new tenant) may latter argue (with the help of their attorney) that your arrangement was, in substance, a loan and not a sale. If a court construes the sale leaseback as a loan, then watchout because the attorney for the owner will start arguing that you made a usurious loan because often with the sizeable equity and option to purchase amount you have built-in for your profit, if it was a loan the interest rate will be very very high (probably over 40%; do the math and check it out).
First, you need to see how your state deals with this issue. If the state has statutes or caselaw on this issue, then you need to make sue that you put disclosures in your contract (i would recommend in 12 point font, bold and in capital letters immediately above the area that they are signing .. better yet, have them initial the disclosure). The disclosure should advise the owner that you are NOT lending them money but purchasing the property from them and if they fail to pay their rent, they may be evicted from the property.
You should also assess whether the person is mentally competent to understand what they are doing. A court will not look kindly on you taking advantage of a person that was not mentally competent at the time they signed the contract (besides, if they weren't the contract is VOID meaning the contract never came into existence ... not just voidable, meaning they have the right to void the contract).
In my opinion, I think the following factors may be problematic (in no particular order of importance):
1. You allow the person to live in the property "rent-free" for some time after the sale.
2. You allow the person to live in the property, paying rent, but rent that is below market.
3. The lease states the owner continues to be responsible for the maintenance, utilities, property taxes and/or insurance.
The problem with keeping the owner in the property is that they will be harder to get out later if things do not work out as you expected. In addition, they will continue to have the mindset that they "own" the house. That is bad when you are dealing with litigation and have no witnesses to support your argument that it was a valid sale. You should have a disinterested person (a person that is not getting paid ANYTHING on the deal) with you when you are negotiating and signing the deal. In fact, I would go as far as to recommend that the seller have a family member there with them when you discuss the contract and they sign.
That is my 2 cents worth,
Taxjunkie
Taxjunkie,
Thank you for your advice in this matter, I will definitely take you information while I am working this deal. Thanks again for your help.
Also, thank to TCI for this wonderful and informative forum.
Jorgan Cattin
Taxjunkie,
I couldn't have said it better. Great advice!
Tanya
why would you consider renting or selling to someone who can not make their payment now?
I would get the house, Make her a tenant buyer in one of my other houses at a much reduced payment and let her use her present home as a nice down payment.
win win!?