Non-Performing Note On Preforeclosure
I am pursuing a pre-foreclosure and this is what is owed on the property:
Back Taxes: $12,000
First Mtg: $140,000
Utilities: $2,500
TOTAL: $154,500
The home can sell for $180,000. After getting consent from the owner, I talked with the 1st mortgagor and they tell me the payoff amount is $140k. Looking at her statement, the principal balance is $103k.
The guy at the mortgage co. said he couldn't give me an exact figure, but he could "give me and estimate, but it's not going to be close to the real value". I said that's not really a good estimate then.
Anyway, I was thinking if the mortgage co. was to sell this note, they would be fighting hard to get 70% of the principal balance, right? I was going to write them a letter offering them 80% of the principal balance.
Have any of you done this sort of thing? Any success?
Best Regards,
Lorne Tappa
there is a big difference between 103k and 140k. Do you understand what this is about? How long has the owner had the note? Does it have a prepayment penalty? In this case we are talking about a prepayment penalty of almost 40%. Can you review the note and see what it says? Something does not seem right here.
Like I mentioned in the post, the guy on the phone wouldn't give me a straight answer. He wants me to believe that there are $37k worth of back interest payments and fees. She is about 6 months behind in payments. She stopped paying after they told her she could not avoid foreclosure by sending in her payments. I told the guy on the phone that I was considering purchasing the home if the payoff amount was $120k, but he said there is no way. I know this is just talk, because it has been done before. Thoughts?
Lorne,
I recently completed a a pre-foreclosure purchase and found similar inflexibility on the part of the lenders. In my case there was a great deal of equity behind two mortgages and the note holders were very confident they would get full payment of principal, interest and penalties if the property went to sale.
An important issue is how much the note-holder is likely to get if the property goes to foreclosure sale. I don't know about Middleton, WI but nearby in Indiana there is a fairly high foreclosure rate and banks are holding a lot of REOs.
If you are going to keep the property and you are convinced that a foreclosure sale might not make the note-holder whole, you might try to get them to restructure the note where you could continue making P and I payments but where some or all of the delinquent money is deferred for a number of years. You could probably work with the county on the back taxes so you are not faced with a tax sale but could pay back taxes over a long period of time. If you then completed the pre-foreclosure sale you would pick up some equity and have a property with very good cash flow potential.
I am also assuming you are dealing with a loss mitigation department of a commercial institution. If possible you might go higher up to see if there is somebody more flexible. I would also suggest making an offer on the note itself except that there is likely to be fear of litigation.
Good luck with this. I am anxious to hear what you do and I am sure others are too.
Regards,
Ed Meyer
Thanks Ed,
I have a feeling the note holders are confident in their equity position, which is why they are telling me there is no wiggle room.
Also, I am not looking to hold this proerty as a rental, but want to retiail it for profit.
My intention is to write an offer letter to a person higher up in the company who can OK such a transaction. I just want to know what can be OKed.
I don't have profit in the deal if they hold fast to $140k, but $120k, there may be a small amount for me. Not enough for me to take the risk.
I guess if they want to wait until mid-December to foreclose on the property and try to sell it for a profit, I can move on to my next deal. It's their choice.
I do however feel some obligation to the seller, because she wants to walk away form this and I have won her trust.
Hi Lorne,
If you haven't presented the bank with a short sale package then they would have no reason to accept a discount. Here is what I would do with this situation.
I would call the bank and tell them that based on the numbers that I have the property is only worth about $160,000. Ask them to order a BPO and tell them that you are the contact person and can get the realtor in the house. When the realtor shows up, explain your position of why the house is not worth retail value as it is now, and bring lower comps with you from other houses in the neighborhood. If the realtor agrees with you and the BPO comes back at $160,000, here is how I would present my offer to the bank.
$160,000 BPO
- $12,000 Taxes
------------------------
= $148,000 Offer them 80% of this
- 20% discount / short sale
-----------------------------------
= $118,400 Payoff (plus you would then pay the taxes)
With this kind of numbers there would be about $50,000 profit in the house if you can fluff it and show an appraiser (with high comps) why it is worth $180,000.
A lot of factors will still go into the banks decision on whether or not they will accept this, but you need to present the package before they would take you seriously! Best of Success!
BAMZ