Sub2 - High Payment, No Equity

Can someone suggest how I can help this home owner? Loan balance = 120K, PITI = 1000, Fair market value of house = 95K, max rent we can obtain in the area = $900.

The owner is 2 months behind on payments and is facing foreclosure shortly. Highly motivated. There is only one loan on this house.

The house needs only cosmetic repair - about 3K.

Comments(19)

  • rynosaurus19th July, 2003

    Why is the fair market value so low compared to the loan balance??? Is this a grossly depreciating area? or is that just the lowest price you can obtain?

    If its depreciation, it doesn't sound to promising as an investment confused

  • maha_s719th July, 2003

    The house values in this area are fairly stable. I am puzzled as to how they were able to obtain a loan for such a high value. We came up with the Fair market value based on Comps. I hope this information will help you to give us some solution to the isue. l

  • JohnLocke19th July, 2003

    maha_s7,

    Glad to meet you.

    This is fairly common, there are lenders who will loan up to 125% of value, which this sounds like the case in your situation.

    In most every case what you see going on with the property you are looking it happens to the seller sooner or later...foreclosure.

    Welcome on board this board, just part of the great financial minds in this country.

    John $Cash$ Locke

  • maha_s719th July, 2003

    John $Cash$ Locke ,

    Thanks for yr reply. Is there any possible solution? Or, do I just walk away from this situation?

  • justmjc19th July, 2003

    Unless the owner has an extra $25k to give you when you close, I wouldn't touch this with a 10 foot pole. This one is a problem and in order to profit other than potential rent collection, you would need to hold the house for a many years waiting/hoping appreciation catches up. There are better deals without the risk and without the length of time needed to finally turn a real profit. Of course if you can rent the home out for a very long time and you get it for "0" down, maybe that's ok if that's your thing. Also, if you needed to refi with a balance like that vs a value much less, you may have a very hard time. Not sure on that, just an opinion.

  • JohnLocke19th July, 2003

    maha_s7,

    I have done properties Subject To with 125% LTV's, however and this is a BIG however, there was something special about the property, Pool and Spa, Decorated to the nine's or something I felt would appeal to a buyer not matter what the price was. Since I match my advertising to the buyer I believe will purchase the property it made it easy to choose what will sell and what won't.

    So in your case if this is a plain Jane house then I would walk away. I know it is hard when you are just getting started and every deal seems like if "I don't get this one I never will", but have faith you will find one that will get you on your way to becoming a successful real estate investor.

    True story as I was typing this post my cell phone rang, it was one of those unsolicited messages from some boiler room. The message was "if you need a home loan we have a plan where interest rates start as low as 2.95% interest." Wonder where this folks were when your sellers took out a loan?

    John $Cash$ Locke

  • tex2419th July, 2003

    to all-
    sorry that my first post is no help to most people, but what is PITI? brand new as you can tell, but ready to expand my horizons. thanks for all the knowledge on this board, and i look forward to the future.

  • JohnLocke19th July, 2003

    tex24.

    Did you really think you could get to me with that one.

    John $Cash$ Locke

  • tex2419th July, 2003

    johnlocke

    sorry, i have no idea if i could get to you w/ that one or not...100% confused w/ what you are talking about.

  • JohnLocke19th July, 2003

    tex24,

    Principal - Interest - Taxes - Insurance or PITI.

    It refers to what makes up the loan payment on a house.

    Your question was an inside joke between John LV and myself.

    John $Cash$ Locke


    [ Edited by JohnLocke on Date 07/19/2003 ]

  • tex2419th July, 2003

    johnlocke-

    thanks for that info, and for clearing up my mind. it's good to meet you, and keep up the good work.

  • 2000rock20th July, 2003

    maha_s7,

    SIMPLY,...in two words ....WALK AWAY!


    ....as always,


    GoodInvesting, Rocky

  • Gary-TX21st July, 2003

    maja_s7

    Actions have consequences. These houseowners made a bad choice. They chose to pay more than the property is worth. Sometimes, when people make bad choices, there is no helping them. I would run away from this one.

    You can not help everyone. In this case, buying this house would just transfer their problems to you, and you don't want that.

    Gary-TX

  • BillyH21st July, 2003

    How about working with the existing lender to do a short sale.

    You might be able to negotiate a profitable loan payoff. To prevent the foreclosure and having the bank sell if for below market any way.

    Win -Win - Win

  • Neill723rd July, 2003

    Kind of surprised that only one person has mentioned approaching the lender about a "short sale"

    Please tell me if you more experienced guys disagree, but I thought that this was one loan where the bank really would be interested in a short sale. The real estate market is very strong so they dont seem to mind taking back Real estate and selling it when LTVs are well below 100%.

    But if they are going to lose no matter what having the Market Value be so far below the Loan, then maybe they should get it out of their portfolio as soon as possible. Hard to get them to discount it 60-70% which is what you really want, but if you are putting in a tenant buyer and holding on, it could work at a far lower loan discount.

    IMO, please correct me if you think I am off.

    N.

  • stormblade25th July, 2003

    Billy-H,

    This is exactly why I love this website!!!

    If you are dealt lemons - learn to turn it to your favor - make lemonade and sell it.

    There are always options in every situation - all you have to do is change your perspective and bingo - more options appear.

    Keep up the good work on this forum folks.

    Stormy

  • Stockpro9925th July, 2003

    Looks like a short to me but you will have to wait for the bank to start foreclosure.

  • linh89525th July, 2003

    HELLO EVERYONE!!! I CONCUR WITH BILLY REGARDING SHORT SALE WITH THE LENDER. IF YOU DO NOT KNOW HOW, OR HAVE NOT DONE IT BEFORE I SUGGEST THAT YOU RESEARCH AND READ ALL ABOUT SHORT SALE SUBJECT BEFORE ENCOUNTER INTO THIS DEAL YOURSELF. IF YOU HAVE QUESTIONS, I MIGHT BE ABLE TO YOU. JUST LET ME KNOW... GOOD LUCK...

    TIM[ Edited by linh895 on Date 07/25/2003 ]

  • linh89525th July, 2003

    Quote:
    On 2003-07-25 05:23, linh895 wrote:
    HELLO EVERYONE!!! I CONCUR WITH BILLY REGARDING SHORT SALE WITH THE LENDER. IF YOU DO NOT KNOW HOW, OR HAVE NOT DONE IT BEFORE I SUGGEST THAT YOU RESEARCH AND READ ALL ABOUT SHORT SALE SUBJECT BEFORE ENCOUNTER INTO THIS DEAL YOURSELF. IF YOU HAVE QUESTIONS, I MIGHT BE ABLE TO YOU. JUST LET ME KNOW... GOOD LUCK...

    TIM

    <font size=-1>[ Edited by linh895 on Date 07/25/2003 ]</font>

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