Scenario Question.
I am just getting my feet wet in real estate investing and have stumbled upon a deal that I would like to get some advice on how to structure the deal.
The seller is a friend of mine and is extremely motivated. He is in foreclosure and is in arrears $9200. He owes $117,000 and the property is worth 165K to 170K. This has been verified by 2 of my appraisers. Also his neighbors house is under contract for 165k as we speak. I have thought about taking the property over subject to the existing financing, through lease option, as well as through an outright purchase. An outright purchase would have more cost associated with it, so I am leaning away from that. I am in the mortgage business and even though I can get a low cost loan it still eats into the profits. I would like to avoid that. I am interested in selling the property as soon as possible to cash out . As they are extremely motivated, they are willing to structure the deal any way I want. All they want for the property is what they owe. I have another real estate investor tell me that I could have the seller add me to the deed, and place a second mortgage on the property for the amount of equity in the property and sell it. Is their any problem with this? 
Quite simply you can do this. Make sure that you have a second loan put on the property for the amount of the equity and then sell your second for whatever you can get above the first. Be careful working with friends, especially ones that are in arears on there bills.
Good Luck,
Kyle
Thanks for the response. I have decided to go with the lease option. I had the seller sign a 48 month lease option, with a purchase price of $117,000. I looking to sell the property at $169,900. I am recording an affidavit of agreement at the courthouse to protect our interest and I have placed a note on his house for the amount of the arrears that we paid for him. ($9,200) I have my friend in a month-to-month lease for the amount of the mortgage. I know this is not the smartest thing to do, but I am actively marketing the property for sale and our market is very hot. I believe it will sell quickly. If I do find a buyer, how does the process work at closing. Do I need to have the seller sign a purchase contract for the $117,000 and have my buyer sign a purchase contract for $169,900? [ Edited by rsmd703 on Date 01/10/2004 ]
That's exactly right, however, with the simultanious closing, you need to make sure you record your sellers deed for your purchase before you record your buyers deed that's buying from you.
Me thinks you need the deed. Again we are back to risk management.
So as a part of a lease option, you should always have the Lessor sign over the deed? I thought that a lease option allows you to assign the purchase to another buyer as long as you place in the body of the document "or assigns". My understanding was that with a lease option, I could place a purchase contract on for $117,000 and get a buyer to place a contract with me for the market price of $169,900 and do a simultaneous close in which the deed would transfer from the sellor, to me, to my buyer all at closing. I thought the recording aspects get handled by the title company that would simply record the transfer of deed to me then would record the transfer to my buyer. Is this not how it works?
[ Edited by rsmd703 on Date 01/11/2004 ][ Edited by rsmd703 on Date 01/11/2004 ]
I think you have followed the correct route. You don't need the deed. Just do a double closing.
Lease/option is just that, a lease with the option to buy. No seller is going to give you a deed until you buy the property.
You have it rented so you are covered on cash flow, just sell the property and you are set.
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I appreciate the input. Thanks for all of your help.
I have heard that one should make sure the title co knows how to do simultanious closings as some do not
Unless your friends' financial woes are over you may still run the risk that the house may be exposed to his next financial stumble. Consult with your RE Attorney and have the house placed in a Trust. Rewrite your contracts then with the Trust. There's a little more to it than that, but your attorney should be able to guide you.
What you want to achieve is that the house is no longer vulnerable to liens, Chapter 13 et.al., as a consequence of his unfortunate situation. You've put some serious money into it, so you want to be cut loose from the goings on in his life.
Make sure that down the road you have a property you can sell.
A little extra paperwork will put you in a great position for that.
[addsig]
My username on this website has changed to smallinvestments, as I have just subscribed to the site. Anyone interested in contacting me will reach me with that username. Thanks for your help.