What Would You Do?
A fellow investor is in a jam and I'm soliciting advice. He obtained a property from an individual facing foreclosure. In exchange for bailing the distressed owner out, he got the deed for the property. He then leased back with option to buy.
What he thought he was getting into:
Restitution - $6500
Loan Balance - $90k
Market Value - $130k
Thus he would sell back at $120k after 12 months.
What REALLY occurred:
Restitution - $6500
Loan Balance - $90k
Interest - $19.5k
Atty Fees - $1k
Legal Costs - $1.5k
Total Payoff = $111.5k
A few days ago he finds out the distressed seller also has $4k of delinquent taxes. The one good thing that's happened is that the home appraised at $137k.
Given these mounting costs and the unreliability of the tennant - he pays his rent late and is also contemplating bankruptcy - the investor wants out as soon as possible.
I told him to consider a short sale, however i'm not willing to do it because 1) i'm a novice and this is more complicated than the one I tried before, and 2) i'm not sure how this will work if the deed has been signed over to the investor already.
One idea might be that he refinance it into his own name so he now owns both mortgage and deed, perhaps giving him more leeway or control in evicting the tennants in order to sell the home.
Anyone have advice? I appreciate any input. Thank you.
restitution
Who is the bank?
Quote:
On 2004-12-23 02:16, Tchakamon wrote:
A fellow investor is in a jam and I'm soliciting advice. He obtained a property from an individual facing foreclosure. In exchange for bailing the distressed owner out, he got the deed for the property. He then leased back with option to buy.
What he thought he was getting into:
Restitution - $6500
Loan Balance - $90k
Market Value - $130k
Thus he would sell back at $120k after 12 months.
What REALLY occurred:
Restitution - $6500
Loan Balance - $90k
Interest - $19.5k
Atty Fees - $1k
Legal Costs - $1.5k
Total Payoff = $111.5k
A few days ago he finds out the distressed seller also has $4k of delinquent taxes. The one good thing that's happened is that the home appraised at $137k.
Given these mounting costs and the unreliability of the tennant - he pays his rent late and is also contemplating bankruptcy - the investor wants out as soon as possible.
I told him to consider a short sale, however i'm not willing to do it because 1) i'm a novice and this is more complicated than the one I tried before, and 2) i'm not sure how this will work if the deed has been signed over to the investor already.
One idea might be that he refinance it into his own name so he now owns both mortgage and deed, perhaps giving him more leeway or control in evicting the tennants in order to sell the home.
Anyone have advice? I appreciate any input. Thank you.
restitution
Bank One
Your investor may have another problem. If he gave the distressed owner the option to buy back at a profit, and the distressed owner goes to an attorney, there may be a suit filed claiming that this is a usurious loan. The penalties for usury are significant.
Why are the taxes delinquent if the investor cured the default (delinquent taxes means late fees and penalties are accruing)? Aren't the property taxes and insurance premiums escrowed by the bank? Were escrows used to cover overdue mortgage payments? Short sale is unlikely if the property is not listed for sale and the loan is current.
From the scenario you paint, I doubt that the former owner will ever be in a position to exercise his option. However, as long as the option is in effect the investor can't sell the property to anyone else. Let's hope that the option period is relatively short.
Apparently your investor friend, did not do his homework before taking a Subject To deal.
You are correct, NewKid - the investor did not do his homework. But I will say that he entered as the financial investor, the actual setup was done by another party.
He too thought the restitution covered everything. What a shock when the bank had an additional $22k!
"the actual set up" maybe i dont understand what you mean, but normaly anytime im looking at a property that is in default i have a payoff sent to me by the bank, which states whats owed. also any sensible person would check title. this is obviously a major oops if he didnt do both and put his own money at stake.
To reiterate: he didn't do his homework.
Now that we've clearly stated so again, i'm looking for solutions. Does anyone have any ideas to help bail this guy out?
Call Bank One, get to their loss mit dept. ask them what they need for a short sale, and give it a try. It can't hurt to try.
Quote:
On 2004-12-24 16:41, Tchakamon wrote:
To reiterate: he didn't do his homework.
Now that we've clearly stated so again, i'm looking for solutions. Does anyone have any ideas to help bail this guy out?
Thanks Ruman, I'll go for it......nothing to lose on my end.