My First Sub-To Attempt
Well this one didn't work out, but I decided I would share with the rest of you. Maybe you'll learn something (if you're new) or maybe you can teach me something I did wrong.
ARV: 230k + (comps in the area go up to 250ish)
Mortgage: 146k
Arrears: 7.5k
Lien by neighborhood association: 500
Repairs: 5k
---------------
Equity: 71k
Here's how we got to that point. I find the foreclosure listing in the paper yesterday. I pull county records and learn about his mortgage and the lien. I find he had the mls entry, which had his phone number. Tried it but it was disconnected. Drove by his house on a whim and he was there. Talked to him for about 20 min and he broke down his current situation and offers, and I told him I'd drop by later with an offer.
Details:
Monthy payment is 1300 for PITI. Auction date of March 9th. He had tried to sell the home through the MLS and it had expired about 3 months ago with a price of 253k.
They had two offers by other investors. One for 17k up front and they'd buy it as a straight purchase. One for 10k up front and 10k when they sold it (L/O or Sub-To, not sure which).
Owner had a neighbor who offered to buy the house from him and then resell it. They wouldn't tell me the amount, but the neighbor said his friend needed 37.5k of his equity to do the deal, which would be about 197k including repairs. I let this drop without pointing out his neighbor would have to pay for the realtor comission, closing costs to secure his own loan, have seasoning issues to deal with and holding costs.
I came by about 3 hours later with my offer. I offered the owner 6k up front and 16k secured by a note, with me cashing him out and paying off the existing note and his 16k in under 120 days. In other words, I offered him 22k, which was less up front, but more total that both of his investor offers.
He wanted me to explain how the deal would work, so I explained he'd get 6k at closing, a security deed against the house for the remaining 16k, and I'd then cure the mortgage and take over payments until I could secure a refi in the next few months.
I believe his exact words were something along the lines of "that's a bunch of @%!, followed by get the !%!#% out". Of course while I'm getting up to walk out, he tells me to come back anytime. (I think he was a little frustrated, and the case of beer he'd been hammering all day wasn't helping him figure out the way the deal would work)
Throughout the conversation I assured him that if we couldn't work out a deal, there were no hard feelings, and he should choose the best offer for himself. I think we had a good repoir(sp?) going, but I just didn't have the resources to up my offer anymore this close to the court steps.
I left him my card and told him if his situation changed and I could offer any help to look me up.
So, what did I do wrong? Obviously my pitch wasn't as good as John Locke's, being as I don't have the track record to show to this owner where I've done this before.
What would you have done differently?
Update:
Talked to owner today and presented him with a new offer. Giving him 18k at closing and paying to reinstate loan (including fees/legal = $9.6k).
Got a contract with him signed earlier. Hoping to close tomorrow.
Questions I have for you guys:
1) What happens if after we get the deed tomorrow, he damages the home on moving out?
2) What if he doesn't move out by the agreed upon date?[ Edited by mwinburn on Date 02/25/2004 ]
I'm a newbie at this but thanks for such a detailed analysis of your situation. I hope some of the experts out their have some good things to say.
If you have time could you send me a PM explaining how your going to come out benefiting from this deal.
Thanks,
One word of advice is not to give the seller any money until he has moved and you have the keys....food for thought
One other thing that just occurred to me. How does the Home Insurance work? Obviously right now he's a beneficiary of it. How do I make sure if the house burns down the day after we move in that my name is on that check and not his?[ Edited by mwinburn on Date 02/25/2004 ]
here are some things:
You have any seller sign certain documents upon negotiations. One being a letter OKing transfer of insurance, another being an affadavit of contract you file with the county, another being the mortgage release of info doc and obviously the sales contract.
Previous poster is right - you never give cash without terms - move out terms specifically~!!! Thats very important because its a hell of a process getting someone evicted.
Another piece of advise is - did you ask him to see the offers he had from the other investors?? Did you make sure he hadn't previously signed someone else's contract? How do you know what he was saying was legit?
Best thing to remember in this business is simple - 2 initials: D & V
document and verify EVERYTHING
Make sure you perform your due diligence, title search is important. you need to know if there are any other liens on the property.
Lil- pa
mwinburn,
It is not about a pitch it is about knowing what you are getting into.
Do you have a re-instatement letter from the lender?
Did you do a preliminary title search that will show you any liens or incumbrances that you should be aware of to make a responsible decision?
If you can anwer the above then you have just begun on two of the many items you need to do the deal.
John $Cash$ Locke
Thanks for the input guys. Let me just respond to John's post for now, and I'll give you more details as they come up. I'm going to the closing table later today hopefully.
Quote:
On 2004-02-27 08:36, JohnLocke wrote:
mwinburn,
It is not about a pitch it is about knowing what you are getting into.
Do you have a re-instatement letter from the lender?
Did you do a preliminary title search that will show you any liens or incumbrances that you should be aware of to make a responsible decision?
If you can anwer the above then you have just begun on two of the many items you need to do the deal.
John $Cash$ Locke
Yes, I have the reinstatement letter from the lender, so I know everything that I have to do to cure the mortgage.
I did my own searches at the court house, and my lawyer is having a full title search run as we speak. It's in my contract with the owner that if any liens other than the one I know about (450 lien by the housing association) come up, then the contract is null and void. If it comes up clean, then the lawyer (who is associated with a title office) will provide title insurance for me.
Not sure if I mentioned it earlier, but I also had the owner amend the contract with me so he only gets 2k at closing (to pay for the movers) and the other 16k when I get the keys. In the future, I plan on not giving a dime until they are out, but this was the best I could do after the fact.
At the closing we are also having the owner sign the following:
*release authorization for the mortgage
*letter stating change of home insurance (which we will send as soon as he moves out and we have our policy in place)
*the subject-to affadavit
*letter to lender to apply the escrow to the outstanding balance when we go to pay off the existing mortgage (I plan on using this as my personal residence and want the owner out of the equation in 6 months)
If anyone else has anything they can think of, by all means grill me. I have another 3 hours before I go to take the pictures of the home to represent the pre-closing state of it, and after that, I'm off to the closing.
Once this is all done (be it successfully or not), I will post a followup listing all the things that tripped me up, and what I learned that could save other beginners the headaches I've run into.
mwinburn.......how did the closing go??
Well I was gonna post here originally, but decided I'd turn my experience into an article. Unfortunately, it turned out to be 7 pages long
I'm not sure if TCI allows article submissions that long or not, but if they do, I'll submit it within the week.
The short version is we walked away from that deal an hour before we were to close. The long version (including the entire process of how we found/pursued the deal) will be in the article.