Sub 2 With High Second
I want to take a house sub to (FMV = $265k) with $195k first and a $50k second...but the $50k second was a 12 month balloon that is now due. Seller said she talked to bank and they will extend second for another six months with pymts of $300/mo on second. First pymts = $1138/mo without taxes (1800/yr) and ins. ($400/yr).
Seller said she could not refi the second for lower pymts and longer term. Any ideas on this deal...or should I move on to my next one?
Aslo, would a private or hard money lender payoff the second if they were in second position? I didn't think they would but just asking.
Todd
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Failing Forward![ Edited by somoose on Date 04/15/2004 ]
You could use hard money, if you weren't in the business of making money yourself. HML's want AT LEAST 12-20% interest.
You say shy "can't"refi the second. Can't or won't. If she was told she can't by 1 bank, go to another-you'll eventually find one that will.
Or you can do the 6 month extension thing, and take the house sub-2. You could then refi the thing yourself (since you do own the house!) and get a good interest rate of 4% or so.
Hope it works out for you.
Sam
Am I nuts? Or are you? At best you have a $20,000 margin here not counting costs. That is slim pickins if any on this large and investment and risk. Forget this one and keep looking!
Now here is a joust at windmills. Tell me Don Q are you game. The second is held by a bank or the same bank. The procedure of this joust needs to be adjusted depending who holds this second.
I will assume a different bank. You gather your information. Appraisal in full display, comps, statements of property values from local pundits etc. You are of course the agent of the present property owner and have documented it.
You are after discount. Which can be achieved in several ways. Reduction of interest all the way to zero for say five years. Modification of the second by reduction of principal balance. Reason for which is that your documentation shows a rather shortcoming on true value. You have of course several estimates of major repairs from contractors. The hidden sewage release under the dwelling. The presance of mold in all particulars. The water supply pipes of galvanized pipe from Japan, you are running an average of five repair clamps the running foot. The lack of proper reduction on all plumbing waste lines they are less then the required 1/4 inch per foot. The roof that has three layers of shingles when two is the legal limit. And the presence of an over sized termite with wings, antlers and fangs.
The present time owner is on the verge of bankruptcy and that a 7, Some possibility of failed prior inspections from the building department. You might take a request for repair and dip it in a red dye and attach it to the documents for proper authentication. The tenant who shares with the present time owner has been convicted of multiple rapes and not just males and females but of some unsuspecting members of the minor phylums who cluck or quack.
Made a bad case. Expose your position as the saviour of the bank and ask for a really biggy discount. The End.
Lucius 8-) 8-)
I have to disagree with quest here, and Lucius... i think i know what you are saying. If you are taking the house sub2 then that probably means the seller doesn't care about her credit. One opportunity you have is to buy the first mortgage and foreclose on yourself (sounds crazy but it won't hurt your credit) THat would wipe out the second giving you a bigger spread. The best move though, would be to just take it sub2 and owner finance it to someone else for $285K. No risk if it falls through.
Thanks Lufos and others for your comments. THe second is with seperate bank...good idea.
Update on deal. Owner called and said the second is has been reduced to $35k. The bank took her new truck out of the original $50k. That helps with the spread. I'm still concerned about the second being on a 12 month balloon. Owner lives in FL but is in town this week cause mom is about to pass. Suppose to meet with her this week to do the deal. I talking to her about doing a lease purchase for six years and then take it sub to in a year or so once she gets the second handled (refi or paid). I'm only covering her first payment ($1138/mo) and she's paying for the second until I buy sub to. She just wants relief from double payments now!
What do you guys think about this strategy?
Todd