What Do You Think?
Ok.....this is what i have. I am a Loan Officer in CA. Ive been farming the NOD/Forclosure list i get from the Title Co. my wife works for. I sent out my NOD letters in hopes of getting a refi out of it. Low and behold i get a call from a guy that is in NOD. I do all that I can as an LO to get him financing, however, as Im sure you know, most hard money lenders dont like anything over60-65% LTV, and on a rare cases 70% LTV. Well I need 75% to cover payoff of the 1st, arrearages, Lender fees, and Broker fees.
So...this is what I came up with.
He sells the prop to me, as an investor, with a 2yr lease option. Here are the numbers,
Appraised in Jan. 06 for 335k.
Sells to me for 295k.
Owes $220500+$16500 in arrearages and fees.
Est. $24k in rent advance ( this will be used to make half the Mortgage payment for the 2 yrs, renter makes other half to show rental history for the 2 yrs. ) account to be held in Investors name. Balance, if any, minus interest, refunded to seller upon exercise of option
Est. $2k for supplimental taxes, also to be held by Investor.
$10k to Investor as non-refundable deposit.
Est. $4k to seller to go toward collection payoffs out of escrow so these wont be an issue when it comes time for him to refi it back ( credit repair ).
Est $8k for closing costs
$5k to seller for rent buffer ( in his account )
$5k to sellers pocket.
At the end of the 2 yr option he can then buy it back for what i bought it for.
So I guess my question is, is this structured correct, is there a better way to do this. I know that it is risky, but whats the worst that could happen, he walks with $10k + $4k for collection payoffs, im left with $34k cash, and 10% equity. As long as everything on my end is disclosed, since i am licensed by CA DRE, could this come back to get me if he claims he was taken advantage of? Thank you in advance for comments and questions.
I will never lease back to the owner. You can get in to much trouble if it goes wrong. If it goes to court we are the evil investors and we took advantage of them, even with CYA letters your still screwed.
Can it come back to you? If you get taken to court (after someone convinces the homeowner that you robbed him), the judge could recharacterize it as a loan, and then you will have to give back the house in the very least. Worst case scenario, you could be ordered to compensate the homeowner, be fined, and rarely, but entirely plausible, you could be taking a vacation in a room without a view. Oh yes, and you would lose your license.
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"A deal is only as good as the quality of your Contracts." --Me[ Edited by LeaseOptionKing on Date 04/28/2006 ]
Ryan...
NODs are a great source of prospects.... However, It is extremely important that you follow the guidelines and when making an offer make sure that there is sufficient equity for the deal to make sense....
The deal you described didn’t make sense economically nor legally...
Never allow someone to stay in the property... Always give the seller the required notices.
As a licensee you’re perfectly fine making offers as long as you’re the principle and not an agent or employee of the buyer.
Just read and understand the law and you will be fine....
And there are going to be soooooo many foreclosures in Modesto soon that it will make this deal look rather stupid….
There is a gentleman starting up in Modesto that you may want to contact… He is going to be doing some very impressive numbers and you may want to hook up together and help one another…
[addsig]
Thanx for the words of encouragement, IBUYHOUSESINC.
How can I contact this person you speak of. I will look for a pm or a new post on this topic,
Thanx again for your help.
Ryan.
it is questionable about whether or not you have the right to place a lien on the property (the Seller can agree to allow a Performance Mortgage when signing the Option--or Lease Option as it is more commonly used with). There are usually narrowly-defined restrictions of who can place a lien and why. You might be able to halt the sale if you record the Memorandum and Affidavit fast enough and can then demand your fee before you release your cloud.
[addsig]
I am not really that familiar with performance mortgages (which is why I love this site )
Maybe you would care to explain in further detail?
[addsig]
Sure. We are familiar most with mortgages that are placed on property to secure a loan. But a mortgage can be used to secure any agreement. Getting the Seller to agree is a bit tricky, but they are often used to avoid the seasoning hurdle with sandwich Lease Options. Unlike a Memorandum that merely clouds the title, a PM is an actual lien.
[addsig]
lindsayd,
Glad to meet you.
My main concern would not be whether they will extend the time period, but from what you describe in this situation can they deliver clear title to the property when you do the final closing..
You have a divorce situation and monetary problems with your sellers, which could lead to liens or emcumbrances being placed on them, which will attach to the property you are living in.
Are the payments being made to a 3rd party like a Loan Servicing Company or are you paying directly to the seller? If so are you sure the payments are currently being made on the property?
Get the above cleared up before you consider even going any further with this deal.
John $Cash$ Locke
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I checked and everything seems clear. So then why is she so nervous? I DO know she only stands to clear roughly $20,000 at closing.
She bought the house for $180,000 and I just found out she has a new mortgage of $202,500.
lindsayd,
My post to you was to point out how vulnerable you are in this transaction, basically divorce and monetary problems with the sellers in most cases leads to major problems.
As far as being nervous, with the husband being gone and her being alone, it usually takes two incomes today to make mortgage payments so if it comes between making the payment on your property and the one she is living in, this might also be an area of concern of hers, guess you know which one will get paid first no matter where the funds come from.
John $Cash$ Locke
[addsig]
Wait, if you are closing in August 2006 you are communicating very well with her and I would be flexible. In my story, the tenants did not give me the consideration of ocmmunicating to the point of not returning my calls or emails. I would consider giving you that extra month and you could consider paying a higher rent for the additional amount of consideration she extends to you. That sounds fair if she needs to unload the property.
If I were the seller I would follow the letter of the option contract. Unless I really liked you for being a very cool tenant and never giving me an ounce of trouble. In that case I might work with you.
Paul