Short And Foreclosure Overload Help!
My brain has enlarged 3 fold the last 2 days and now I'm gettijg stupid so here is the question:
If the investor does a short sale , he gets title, right ?
so then he could sell it back to the owner for more money (owner finance)than the short sale
and then if owner defaults, he could foreclose again
Now I know thats a bad thing (to let owner stay) but it could happen that way right?
After a successful short sale someone takes title to the property. The new owner can sell to whoever they want.
You had better get a CYA letter that explains to the current owner that he might get a deficiency judgement or a 1099 for the difference between the short sell and the balance. He will not be happy if he has a judgement or a taxable event on a house he just sold and then rebought for more money. Can not imagine that the lender would like hearing about it either.
Although it would be a good local TV news story.
Brenda
Many HOs in foreclosure wish to save the house. This would seem like a great way to accomodate the situation. However, how likely is it that the old homeowner would be able to qualify for financing? Especially for the same property they couldn't afford earlier for less money.
instead of owner financing it to hime why not lease option it to him? that way you could evict instead of foreclose if they get behind.
bgrossnickle,
Good points There are many things surrounding this deal and I hadn't thought of that, even though I knew it . I'm still trying to put this knowledge in the right slots
Thanks!
You've got bits and pieces to the answers your are looking for but let me sum it up.
First the current homeowner wouldn't be able to buy the house from you for the financial reasons stated, they are in foreclosure remeber? - they don't pay their bills.
The stratagy is to purchase the house from the homeowner, do a short sale from the bank which results in a spread between what you are buying the house for and what it will be worth.
Then you would lease it back to the original owner with an option to purchase it at a date in the future. They would actually be able to purchase it for the same amount they owed or even less since your got it cheaper by the short sale. (remember the spread mentioned above)
The theory continues and is true that getting rid of a bad tenant is much easier than foreclosing to get rid of them. Much, much, much cheaper and about 10 times quicker.
In theory you would make your money (the spread again) when they purchased it at the end of the lease option.
But alas, unfortunately reality is a factor.
Why would you ever want the original homeowner to lease option and buy from you?
Number 1 - in a typical lease option the new leaser would be giving you a non-refundable lease option payment. Guess how much the original homeowner has available to give you? -ZERO- that is why they are in the trouble they are in. So you will be giving up the option payment.
Number 2 - Unless you have a non-typical original homeowner their financial circumstances are not going to be dramatically turned around just because they are now making a rental payment instead of a mortgage payment,even if it is $50-200 a month less than before. For some reason people like this always find another thing to spend that difference of payment on.
So they will not most likely ever have the credit to actually cash you back out of the house, unless you are willing to rent it to them for maybe 5-10 years.
Keep in mind you could at least have a even chance of getting a complete stranger in the house who might pay their bills, you already know for sure that these people don't pay their bills going into the deal!
Plus, think how well they are going to think of you when you ultimately end up kicking them out of the house after they never pay you. Do you think they are going to remember you as the nice guy that gave them a second chance at the house, or as the bastard that stole it from them and ended up kicking them out? Can you think of the fun you are going to have getting them out and the damage you will have to repair. Unless you follow another one of the theories and bribe them to leave nicely. I'm not fond of paying bribes.
Unless there are some really unusual circumstances to make me think other wise I would look to the original homeowner as the last person on earth to leave in the house.
Get them out and find a new person to buy or option from you.[ Edited by The-Rehabinator on Date 01/26/2004 ]