Pre-foreclosure: Lease Back To Owners
I have a question in regards to a pre foreclosure. The owners are four months behind, due to job loss. The house is in need of a new roof as it is starting to leak. The house also needs updating. The owners are back working now and want to stay but are unable to refinance due to time left before the foreclosure. They have asked if we could purchase the home or take over the mortgage make the 15K in repairs and sell it back to them for the value we arrive at after we make the repairs. They understand we would be making profit on it and are OK with this. They also understand that if they can't get approved that they would have to move and allow us to sell to someone else. I am pretty sure we could get them approved as I have got some of the worst credit buyers approved. The resale price would be around 95K so the payments are no more than rents in the area. Has anyone here done this before or something similar. Please give me some advise.
THanks
TBARBER
You can do it. But there are risks. You are going to put the money into a house that the previous owner is about to lose to foreclosure. If you do a deal like this, its always a good idea to make the homeowner put something valuable into the deal. I've done deals where I buy materials and make the homeowner do the actual repairs. What prevents them from walking from the deal and destroying the money you sunk into the house? Nothing. Sometimes these are good deals because you have a built in renter to make payments. But Ive had it turn ugly also.
If the investor has the deed transferred in his companies name could it still get ugly? What could the previous owner/renter do to mess things up?
It sure could get ugly even if the investor had the deed. There is case law that points to this. There have been courts that have deemed the whole transaction a loan and gave the seller back ownership. So the investor would have equitable interest in the property. This is not something to jump in without seeking legal counsel.
How can one of these go wrong? I know of a couple. Couple is married, one quits job to go to school, hubby is gainfully employeed... a year later hubby is laid off... they go 6 mos behind. I buy the house with build in renters... they declare bankruptcy to rid themselves of all the other debts.... they fall into the 92% statistic that coouples declaring bankruptcy fall into - they get a divorce... it gets ugly. They trash each other and the house - busted doors, walls EVERYTHING. You pick up the pieces with 6 - 8 months still left on the year lease and a bill for $9,270 for repairs.
I have had great experiences with renters too mind you... key point for success with us is the RELATIONSHIP and trust we build with our clients. We turn them over to our church credit/debt counselors for free - if they are open to it - we haven't been turned down yet. We also know a lot of people in the trades and community so we also help them at any time with job search and get them employeed if they have lost a job... Our secret to success. Value added Customer Service and a Christ Centered business practices handbook.
If for some reason you end up not being able to make the payments and it ends up in foreclosure you could be charged with equity skimming.
Here is a link with the definitions of equity skimming. http://www.leg.wa.gov/rcw/index.cfm?fuseaction=chapter&chapter=61.34&RequestTimeout=500
You may say thats not what I would be doing, but we all know that in a court of law a poor inocent home owner would win over a rich greedy investor.
Just be careful and have a good exit strategy.