Would You Buy This House?
Hi TCI!
Would you buy this house?
I got a call from a seller last night that saw my bandit sign in my farming area. The husband lives out of state and is supposed to pay the mortgage payments until the child turns 18. However, he has lost his job and can' t make up the back payments. Since he took out a 2nd, they can't sell it without taking a lost.. They have received the "notice of sale" 50 days ago. 
Typically, in arizona, you have at least 90 days before the trustee sale. Here's the numbers..
1st (FHA): 87k
2nd : 30k
ARV: 120-125k
Condition of property: Ok, no major repairs.
Here's my thoughts, the 1st does not qualify for a short sale. Even though she still is in the property, I don't think I can show a FMV that will be conducive for short sale consideration for this FHA loan. However, the 2nd can be shorted low.. Assuming I can successfully short the 2nd to 10%:
87k + 3k= 90k (purchase) ---> 90k/120k=.75 (25% equity)
This deal looks to skinny for wholesale, what would you guys do to make profit? 
Any thoughts are really appreciated. In addition, we have probably only 40 days to make it work unless they are willing to postpone. 
Thanks in advance,
Bginvestor.
Why doesn't the first qualify for a SS?
Be that as it may...it does look a little thin. Can you purchase the non-performing 1st from the bank at a discount. That would lower your total cost into the house. I'm not very knowledgable in this arena yet but look under the 'notes' forum.
Good luck
FHA insured loans can be shorted, but their servicer will require a net recovery of not less than 82% of the confirmed value. Your job will be factually denigrate their perception of value. You are probably right... they don't have much exposure to loss.
If you did ask the first to short..they would dictate that the junior lien receive not more than $1,000.
You are better off concentrating on the preparation of your Proposal to the second.
One idea to make a decent profit in this deal is to buy the property conventionally and sell it as a lease option in one or two years to a needy t/b that doesn't qualify for a loan right now.
If bought for 90k based on assumptions above, then sold to t/b for 132k in two years (120k FMV*1.05*1.05) I could make a 42k spread. Of course that does not include closing costs on both sides and is conservative. The only thing that sucks about this deal is that its conventional financing. I'm not excited about using my credit.
Since I'm not shorting the 1st, I could take over the 1st subto, however, John Locke has suggested to be very careful in this situation since the FHA agents will probably check for owner occupancy IF the back payments are made up..
In any event, its fun to play with the numbers to see if there's possibilities..
Bginvestor