Please Help With Preforeclosure
I want to help my friend who goes through foreclosure. His property is scheduled for sheriff’s sale in a few weeks. His house needs about $50K in repairs (rough estimate) but once repaired it should sell for $350K. First mortgage is closing at $70K, there are no other liens. I want to buy and flip it, my friend is OK with it.
What steps should I take in this situation? I have a good credit rating and can take either home equity loan or purchase loan. How do I calculate the purchase amount that is fair for both of us? Should I order the house inspection before calculating the offer? Please help. I really want to help my friend out and at the same time I want to make sure that I won’t loose money on this transaction. Thank you
1) Get the authorization and send it to the foreclosing lender and their attorney. Ask for the payoff and reinstatement.
2) Get a title search done.
3) Have the owners sign a warranty deed and a limited power of attorney. Wait to record these until after the title search looks good and the payoffs are what you expect.
4) have the owners move out of the house prior to reinstating the loan
5) After you record the warranty deed then reinstate the loan. If you have time and the reinstatement is large, wait until you see your deed recorded so that you know the owners have not been selling deeds. ( I was on my way to pay for a deed once when a recent deed to another person showed up on public record). Pay the reinstatement amount.
6) Get what the monthly payment amount is and where to send the payment.
7) Get some landlord insurnace with the morgagee as loss payee and the previous owner as additional insured. Fax in the change of insurance to the lender.
fax in the POA to the lender and have the address on the account changed to your address
You could sign a contract with your friend that you split any profit 70% for you and 30% for him. He gets his profit when you deed the property to an entity that you do not control.
You are assuming that the title search will show that the mortgage is the only lien and that the payoff will be 70k. I can assure you that most home owners are not correct when they tell you this information.
I try to buy properties at 70% of After Repair Value (ARV) minus repairs.
350 * .7 -50k = 195
So 195 is the most that I would pay for the house. Since it is a high price house (for me), I would pay less to descrease the risks. Realize that 50k is a lot of repairs. I would definately get it inspected. I would also verify the ARV by getting an appraisal.
I would offer to give your friend 20k up front, once he signs over the deed and moves out. Then he can have a mortgage on the house for the other 105k.