My First Deal (maybe)
Ok Everyone. I have been reading these newsgroups for a few months now and I may have my first pre-foreclosure deal and want your opinion and advice. I have learned so much from all of you so hopefully I can return the favor in the future.
I just started working pre-foreclosures this week and already have my first possible deal. I just got a call from a lady who's house is getting auctioned off in 2 weeks.
FMV $155,000
1st Mtg. ~$110,000
Need ~$30,000 to bring mortgage current.
All this information is according to her. I am meeting with her tomorrow to discuss possible ways I can help her and verify all the information.
My first thought was to get a hard money loan. I have a contact that says he will do a HML at 75% ARV/ 3 points/ 12%.
Second I could (possibly) pull a HELOC on my current residence and purchase her property Sub2.
Problem is time of course. She says the auction is in 2 weeks and I don't know if I can get the HELOC funded by then. HML may be the only way to go here. Thoughts?
Oh by the way, the house is in good shape and not in need of much repair. (per seller) I will verify this tomorrow obviously.
John Locke - if you're listening, I bought your manual on Monday but I haven't received it yet. Any particular advice for me?
I really value all of your opinions. This message board has been invaluable to me.
-Troy[ Edited by tande on Date 05/18/2004 ]
Well, the first problem I see with your HML stratagy (other than it would cost you a fortune) is you would need to front some serious cash. Since the HML will only loan 75% of the FMV, you will only get a max loan of $116,250. That leaves you with about $24k to come up with to cure the default. Even if you managed this, at 12% this house would probably not cash flow if you rented it out, etc.
The second option is possible since the HELOC should come in at ~4-5%, however, I don't know how quickly your bank could put the cash together. I'd give them a call and find out. No harm in asking.
Here is what I would do. Tomorrow, make sure you take a letter of authorization with you to receive permission to speak with her mortgage company. Get a copy of her mortgage statement for updated info and call their number. Ask to speak to the loss mitigation department and find out who is handling her case. Tell them that you are interested in the house and would like options available to avoid the foreclosure. They may or may not be helpful. If push came to shove and your client hasn't declared bankruptcy, you could always threaten them with that.... (Not something I would do but would get their attention, bankruptcy ties homes up for a longggg time) Also, you need to get a preliminary title search done (to check for liens) and a firm estimate of repairs necessary and ARV. Worst case scenario, you could always show up at the auction and bid on the home, but make sure you do all your homework first!
-Chris
[addsig]
Thanks for your reply Chris. The deal is a little different than what you were saying though.
HML loan would bring $116,000. The bank wants $110,000 (that includes the $30,000 back payments etc.) So I would have instant equity of $45,000 (assuming I only finance the $110,000) and the HML would cover the whole amount.
-Troy
Troy,
Why go with the HML option? Have you considered a subject-to deal? Saves you the costs of obtaining new financing.
30K to catch up when the total including the 30K is 110K seems like a lot. See why so much.
I note that you are in Tigard. I will be back in Beaverton Wednesday evening. Maybe we can connect in person if you want more advice.
Have you joined the NWREII investor group? Lots of other experienced people there that meet most weeks.
John
[addsig]
Sorry, I misunderstood your information. I thought the mortgage balance was ~110k (not including the arrears).
That being the case, the HML is an option but I think you would be better off with the HELOC or conventional financing. There are several companies out there that can have a loan in place in three days. At 70% LTV, this should be a slam dunk to finance....
-Chris
[addsig]
John -
I would like to do Sub2, in fact that is how I want to approach most sellers. However, in this case what do you do about the $30,000? I don't have that available right now. I will find out more tomorrow about why so much.
I would like to talk with you when you get back tomorrow. I don't know any other investors in this area and would like to network with some. I will send you a message with my contact info.
Chris -
The only problem at this point is time. The bank is scheduled to auction in 2 weeks and that's just not enough time to get a HELOC set up and close the deal before the auction.
What companies do you know that can have a loan in place in 3 days?
I know someone is going to say I should of had all this in place already! And they would be right. But I honestly did not think I would have a possible deal so quickly and I have been doing research for a long time and thought it was time to get off the pot and get out there....
-Troy
My broker works for prime lending. I don't recall which loan company the program was through, but she assured me she has used them several times and as long as all documents are ready when the app is signed, they can push it through for a 3 days turn around. I'm very surprised you're having trouble....all my previous conventional loans were ready to go in under 2 weeks...
-Chris
[addsig]
Hi.
My opinion would be to buy the property "subject to" then finance $40,000 throught the Hard Money Lender. That way you have the 30k to pay to bring the loan current and and extra 10k just incase something comes up.
hope this helps