Sub2 / Owner Stays / Personal Residence
Hello All,
Nice lady in preforeclosure responded to my letter. Tragic story, tragedy after tragedy, bad stuff.
Her story is that she let it go to foreclosure to keep a rash of lawsuits against her late husband's estate at bay, "see, I can barely pay my bills." The subject property is not part of the estate, she purchased it after all of the ugliness. She sounds legit and financially stable (or more than 99.999% of preforecl). She says she can bring it current at any time, and doesn't care to cash out the equity she has b/c she's afraid it will just get eaten up in lawsuits. I know, I know, sounds like trouble........
For the sake of this post, let's assume its true. Anyway, she is sick of owning and wants to rent. However, her daughter is graduating high school in 6 mos and does not want to uproot.
She will sell for what is owed ($230k), comps around $280k, appraised 6 mos ago at $290k. In exchange for that equity, she would like to live in the property until daughter moves out. The numbers work even with 6+ months of holding costs.
I want to Sub2, and ultimately move into the place when she moves out.
Make no mistake, I will consult with my (sub2 friendly) RE attorney beforehand on this one. Nonetheless, I wanted to consult with you, my esteemed TCI community, on what to expect.
1) how should I handle insurance?
2) Should it be written into the sales contract that owner has 6 mos to vacate/ other protection from usury/equity skimming
3) anything else to disclose verbally, write into the sales contract, or obtain other separate documents (other than the usual sub2 docs?
4) Any other traps I should be aware of or research?
Is there a way to secure this deal? 
If she is in foreclosure they may have already called the mortg due.
How about having her sign all the sale papers.
Date them for a closing in 6 months.
In the mean time she stays there, pays the insurance and the rent.
In 6 months if all is well you close like normal.
[ Edited by MrMike on Date 12/17/2003 ]
Will she be paying rent for those 6 months? That would help to prove that it was a legit lease. I would also write into the purchase agreement that you are an investor and that you do this for a profit. Spell out everything on paper. You might even want to have her sign an addendum that you have recommended that she seek legal council.
Your RE attorney should have some good pointers for you.
I believe the answer about the insurance is that she will be the renter and that you should get a landlord policy.
Good luck
Thank you guys for the input.
She would not want to pay rent, as she effectively wants free rent in exchange for the equity. In substance the deal works and is win-win. I just want to be airtight legally.
I don't think she wants to stay on the title for now, which would rule out the closing in 6 mos (though I will certainly offer that alternative). Also, I don't want her to want to back out of the deal in 4 mos before its closed and end up in a messy situation. I feel more secure if I'm on the title (is that the wrong way to think?).
However, I could perhaps pay the PITI. We then could create a 2nd mortgage, in which I pay her the 2nd mortgage of $2100/mo, then she sends me a check for the same amount in return for rent (for a net effect of me only paying the costs of the property)?
Thanks everyone for your help!